Public Power Corporation SA, or PPC, has increased the size of its five-year (non-call two) sustainability-linked bond issue to €650 million from €500 million, and tightened pricing to a final yield of 3.875%, from previous guidance of 4% area. Initial price thoughts were in a 4%-4.25% context. Books close today at 1:30 p.m. UK time, for allocations thereafter.
Proceeds from the deal will be used to refinance existing debt and for general corporate purposes (with the increase to go towards refinancing debt).
A virtual roadshow ran until March 10, with HSBC (B&D) and Goldman Sachs as joint global coordinators and physical bookrunners on the deal, while Citi is a joint global coordinator and bookrunner.
This is the first issue in the European high-yield bond market with pricing linked to environmental, social and governance criteria.
The sustainability-linked KPI is targeting a 40% reduction in the firm's Scope 1 CO2 emissions by December 2022, taking 2019 as the base year (note, Scope 1 CO2 emissions refer to the fuel consumption of thermal power plants, as per the Greenhouse Gas Protocol as well as emissions from electricity self-consumption by PPC thermal power plants). From 2023, the interest rate payable on the notes will step up by 50 basis points unless the target has been met. At the end of 2019, the issuer reported Scope 1 CO2 emissions of 23.15 million tonnes.
Sustainalytics acted as an external party to review the sustainability-linked bond framework in alignment with the ICMA sustainability-linked bond principles, and provided a second-party opinion on the framework. According to sources, they have rated the strength of the coupon step-up as strong, and rated the targets as ambitious.
Early investor feedback highlights that the ESG feature is being well-received as it gives accounts the chance to buy into a bond for which there is a strong and tangible ESG component, when compared with, say, a typical green bond offering where the ESG element stems from use of proceeds of the notes.
Accounts add that while this is an attractive feature of the issue, it is just one selling point, and they are still doing their credit work on a company that last issued in 2014 and has since undergone a significant transformation, both in terms of its management team and how it operates. Tentative early feedback has been constructive on the credit, with sources speaking positively about the repositioning of the firm.
In November 2020, S&P Global Ratings upgraded the company's long-term issuer credit rating to B from B-, commenting that PPC's "strategic repositioning and improved Greek energy market fundamentals have reduced concerns over the company's liquidity position and long-term sustainability. We expect a substantial increase in EBITDA and improvement in credit metrics on the back of higher profitability as PPC accelerates the closure of its lignite mines and generation plants and shifts its competitive position in the retail market."
HSBC was structuring adviser on the sustainability-linked bond, while Alpha Bank, Ambrosia Capital, Axia, Credit Suisse, Eurobank, J.P. Morgan, National Bank of Greece and Piraeus Bank are joint bookrunners.
The issuer is rated B/BB- (S&P/Fitch), and the agencies have assigned the same instrument rating on the new bonds.
PPC is the largest power generation company in Greece, with assets that include lignite mines, power generation and distribution. At the end of 2019, the firm announced an updated strategic business plan to transition to an environmentally sustainable utility, and over the next three years it plans to update its power generation business to decommission all its existing lignite generation capacity and improve the efficiency of its remaining units.
In the 12 months to end-September 2020, the issuer reported recurring EBITDA of €932.7 million, according to the offering memorandum. Its adjusted net debt to recurring EBITDA leverage was 3.7x.
PPC is 34.12%-owned by the Greek state, while the Hellenic Republic Asset Development Fund holds a 17% stake and the Single Social Security Institution (EFKA) and TAYTEKO/TEAPAP-PPC hold a 3.91% stake. The remaining 44.95% is controlled by institutional and retail investors.