Repsol Markets Corporate Green Bond

 

The Spanish company started marketing a no-grow €500m five-year at 55bp area over mid-swaps on Tuesday morning - only the third investment-grade corporate Green bond in Europe this year.

 

The company is raising the funds to upgrade its renewable energy functions, such as furnaces and turbines, in a bid to reduce its emissions.

 

"It seems slightly perverse for a company like Repsol to be issuing a Green bond, but if they put the proceeds in the right place than it will technically fit the framework; it's more about sustainability and governance opposed to a traditional 'Green' funding," one investor said.

 

Although some investors are still getting their heads around the dynamics of the deal, the premium being offered is expected to ease some concerns.

 

"It's very weird for an oil and gas company to do a Green bond," another investor said. "I suspect this will be an issue for some 'Green' investors who avoid the sector completely."

 

"The proceeds are for energy efficiency and low emissions technology projects, but not exactly pure Green in my opinion. That said this will price off the senior curve."

 

Investors saw a 25bp premium at initial talk, but expected pricing to tighten significantly, which it later did to plus 40bp area (+/-3bp) as orders surpassed €2.7bn.

 

"Repsol's senior curve is already pretty tight and pricing comes amid good news and balance sheet improvement so there's not much value there," the second investor said.

 

Repsol posted a 10% rise in first-quarter adjusted net profit to €630m last Thursday, beating forecasts as recovering oil prices offset falling production and refining margins.

 

Repsol, Europe's fifth-largest refiner by market value, said net debt rose to €8.35bn at the end of March compared to €8.14bn three months earlier, while its goal of making savings worth €2.1bn this year was on track.

 

Investors were confident the deal would attract plenty of demand from those needing to fulfil their Green requirements.

 

"It's not a deal that many will short, and the capped size of €500m will help spur demand," the first investor said.

 

"The deal from a well-known company like Repsol will also provide a good sound bite for more companies to raise Green financing, and it could open demand from investors too who were previously not looking at Green bonds."

 

Unlike the SSA market, where Green bonds are a regular feature, the IG corporate market has seen little such supply in recent years.

 

Enel sold the first Green bond of the year in January, a €1.25bn seven-year, followed only by Spanish utility Iberdrola (IBE.MC) with a €1bn eight-year in February.

 

Alliander, Iberdrola, TenneT, Southern Power and EDF sold Green deals last year, according to IFR data.

 

Repsol is rated Baa2 (negative) by Moody's (MCO), BBB- (stable) by S&P, and BBB (negative) by Fitch.

 

In October 2015 the company said it was planning to sell a further €3bn of subordinated debt as part of its US$8.3bn Talisman acquisition financing, following a €2bn hybrid.

 

However, the company has since scrapped the idea, opting to instead sell a stake in Gas Natural (EGAS) to optimise its balance sheet, investors said.