Government-controlled Public Power Co. caught the attention of some of the world’s biggest banks and investment funds with its green bond issue, partly aimed at funding a significant chunk of the energy transition in Greece. The demand was so strong that the power producer decided to sell sustainability-linked debt securities worth EUR 125 million right after it borrowed EUR 650 million.
With its pledge to cut greenhouse gas emissions by 40% through 2022 from the 2019 levels, the Public Power Co. seems to have significantly boosted investor confidence. The company, 51.1%-owned by the Greek state, recently managed to borrow EUR 650 million on the international market as it issued securities linked to environmental performance. Less than two weeks later it raised another EUR 125 million, also via a high-yielding five-year green bond issue.
The interest rate for the first package, which landed at 3.875%, dropped in trading in the meantime at the secondary market, so PPC managed to complete the additional round with a 3.672% coupon. The levels are attractive as investors are struggling with near-zero interest rates. But the power utility is also set to benefit, as its current borrowing costs are roughly 5.4%.
Sustainability-linked debt has a growing significance in the world market
Green bond arrangements are an emerging segment in the global debt market. Companies, governments and financial institutions are turning to the tool to provide funds in line with new, stricter environmental standards. Firms can also gain access to public funds if they accomplish goals with regard to sustainable development. A large chunk of the proceeds from green bond issues is directed to energy.
Biggest names in financial market
Asset management company BlackRock, the biggest in the world, was among the buyers, together with Fidelity, Apollo, Pictet and other notable names from the scene. The European Bank for Reconstruction and Development (EBRD) invested EUR 50 million in the first round.
PPC said it would spend half of the first part of proceeds on investments from its business plan: renewable energy, transport electrification and other green projects. The rest of the staggering EUR 775 million package will be used to repay old loans which have higher interest rates, which also indicates the investors’ trust in the firm’s energy transition push.
If the 40% emissions cut isn’t met, the company is obligated to pay 50 basis points or half a percentage point more to the creditors. The second round was planned at just EUR 75 million. The Greek media reported investors bid 4.5 times more and PPC eventually sold EUR 125 million in green senior notes maturing in 2026. The first batch was oversubscribed six times.
#PPC announces today the successful pricing of €650 million HY #SLB at a coupon price of 3,875% and an issue price of 100% due in 2026. With an oversubscription of 6x, it is an undeniable proof of trust in the Company’s strategy towards green energy and sustainability. pic.twitter.com/6m1MalpN0E
— ΔΕΗ (@DEI_GR) March 11, 2021
Green financing from EBRD, EIB
It is the first sustainability-linked bond in the regions where the EBRD invests, according to the international finance institution’s announcement. It added PPC also has the most ambitious corporate decarbonization goal in its portfolio. EBRD noted the target is expected to be met primarily by decommissioning all lignite-fueled power plants by 2023 and replacing them with renewable energy capacity in a significantly accelerated program that will add 1.3 GW of mainly solar and wind power to PPC’s portfolio.
The European Investment Bank supported PPC Renewables’ 230 MW solar power cluster project with EUR 40 million
EBRD provided a senior unsecured loan of up to EUR 160 million to the Greek company last year to support its working capital needs at a time of customer payment volatility following the outbreak of the coronavirus pandemic, and to ensure stability of essential utility supplies and maintaining the momentum toward decarbonization.
Of note, the European Investment Bank recently approved a EUR 40 million loan to PPC Renewables, PPC’s green energy subsidiary. The funds are intended for its three solar power plants with a combined capacity of 230 MW in the Western Macedonia region. The financing has already been launched in January, so the decision was only a formality.
The cluster of photovoltaic facilities has a EUR 143 million budget. Metka EGN already built the first of the two 15 MW units located in the northern part of the country and handed it over to PPC Renewables. GEK Terna won the contract for the other one while the start of the construction of the remaining 200 MW solar park is scheduled for later this year.
PPC Renewables has a target for renewable energy capacity of 500 MW for end-2022. It is leaning on the partnership that it is about to establish with German RWE. The joint venture plans to develop photovoltaic parks with a total capacity of up to 2 GW.
In other news, PPC, also known as DEI in Greek, just started the procedure to outsource some of its financial, accounting and administrative activities. As for its decarbonization efforts, it conducted several rounds of voluntary layoffs with severance payments and other benefits.