Italy's Enel, sustainability-linked bond pioneer, brings record debt sale

The logo of Italian multinational energy company Enel is seen in Milan
The logo of Italian multinational energy company Enel is seen at the Milan headquarters, Italy, February 5, 2020. REUTERS/Flavio Lo Scalzo

June 8 (Reuters) - Italian energy utility Enel SpA (ENEI.MI) raised 3.25 billion euros ($3.96 billion) on Tuesday via a triple tranche sustainability-linked bond sale, a record amount in the format the company pioneered two years ago.

Enel's deal will be the biggest sustainability-linked bond sale to date, dwarfing a 1.85 billion-euro issue outstanding from drugmaker Novartis AG (NOVN.S), according to data from Refinitiv.

It reflects the growing popularity of sustainability-linked bonds, which force issuers to increase coupon payments should they fail to meet pre-set company-wide targets.

This format is fast emerging from the shadow of green bonds - debt that specifically funds climate-friendly projects - as investors seek new opportunities in the environmental, social and governance (ESG) space.

Enel's latest bond raised 1 billion euros from a six-year tranche, 1.25 billion euros from a nine-year issue and another 1 billion euros from a 15-year deal, according to a lead manager memo seen by Reuters. Demand was 10.4 billion euros, it said.

Should Enel's greenhouse gas emissions exceed certain limits by end-2023, coupons on the six- and nine-year bonds will step up by 25 basis points each, according to an earlier memo.

There will be an equivalent step-up in the 15-year bond if an even stricter pre-set target is exceeded by the end of 2030.

Since Enel sold the first bond in this format in 2019, "the market for sustainability-linked bonds seems to be maturing and could therefore attract a larger crowd of issuers," said Shanawaz Bhimji, senior fixed income strategist at ABN AMRO.

"As long as there's a credible story behind the sustainability (key performance indicators), investors will scoop up this type of debt."

Refinitiv data shows companies sold $10 billion of sustainability-linked debt in the first quarter of this year, surpassing the entire issuance across 2019 and 2020.

Sustainability-linked bonds are considered a useful tool for supporting traditionally "brown" companies' transition efforts, and also for smaller companies that cannot identify individual sustainability projects.

The bonds are linked to a tender exercise and will replace conventional bonds as part of Enel's commitment to promote sustainability-linked issuance in their capital structure, a lead manager said.

($1 = 0.8212 euro)

Reporting by Yoruk Bahceli in Amsterdam Editing by Matthew Lewis

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