ESG

PPC looking to capitalize on momentum with July bond issue

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Power utility PPC is preparing to issue a new ESG (Environmental, Social and Governance)-linked bond in July, driven by favorable market conditions and a recent B+ credit rating from S&P, banking sources have informed.

A PPC bond issue in July would capitalize on current market sentiment, still positive. If the Delta variant, a strain of Covid-19 believed to be more transmissible and dangerous than others, continues to spread, a growing number of countries will impose restrictive measures, which would dampen economic recoveries and investment activity.

A second driving factor for an issue in July is the increasing inflationary pressure triggered by economic recovery. The Fed has indicated that this inflationary pressure rise will continue.

Rising inflation combined with solid performances in the global economy suggests the time for interest rate increases is approaching, as indicated by a rise in yields on US bonds.

Internationally, investors believe it is a matter of time before central banks raise interest rates to control inflation rates.

This would be an unfavorable development for countries and corporations, such as PPC, that have managed to borrow at low interest rates.

Given these possibilities, PPC, in the months ahead, may not have the opportunity to achieve a bond interest rate that would be as good or better than the rates achieved with a double issue last March. PPC raised 775 million euros through two ESG-linked bond issues, the first at 3.875% for 650 million euros, and the second at 3.67% for 125 million euros.

 

PPC bond issue, ESG-linked, attracts top international funds

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Some of the world’s biggest investors are among the foreign institutional investors who participated in power utility PPC’s recent bond issue as well as a supplementary issue staged yesterday, through which the corporation raised a grand total of 775 million euros.

Participants included US fund Blackrock, managing capital worth nearly 8 trillion dollars, fellow American fund Fidelity, whose portfolio is worth 440 billion dollars, the UK’s Apollo, managing 455 billion dollars, and France’s Pictet, with an investment portfolio worth 689 billion dollars.

The turnout for PPC’s bond issues was dominated by real-money investors, or institutional investors handling enormous amounts of cash reserves for long-term investments in companies with solid prospects. Their clients are chiefly retirement funds as well as corporations looking to the future.

Information made available until now on PPC’s bond issues indicates that 70 percent of subscribers were from abroad and 30 percent domestic. Among the foreign investors, half are institutional and real-economy investors, many of these cross-Atlantic.

US and European investors participated in the issues with shares of close to 50 percent each, while investors from Australia and Asia represented about 5 percent of subscriptions.

PPC’s initial bond issue raised 650 million euros at a borrowing rate of 3.875 percent, while yesterday’s follow-up issue raised an additional 125 million euros at 3.67 percent.

Bond issues linked with ESG (Environmental, Social and Governance) terms, as was the case with PPC’s two issues, are in high demand, internationally.

Through its issues, five-year bonds maturing in 2026, PPC has committed to a 40 percent reduction of CO2 emissions, from 23.1 million tons in 2019 to 13.9 million tons by 2022. If this target is not achieved, 50 basis points will be added to the yield.

Strong investor interest expressed in PPC’s bond issue

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Strong demand expressed by Greek and foreign investors for power utility PPC’s five-year, 500 million-euro sustainability-linked bond, whose order book closes tomorrow, suggests the issue will be oversubscribed by two to three times, sources have estimated.

Local brokerage companies are submitting order requests that represent up to three times the size of actual amounts investors have decided to place in this SLB issue in an effort to ensure their clients will get the bond quantities they want.

The level of interest of foreign institutional investors, targeted by PPC as a key group for the success of this bond issue, is expected to be even higher.

Analysts attribute this heightened investor interest to two main factors, firstly the bond issue’s yield, which is expected to close between 3.5 and 4.2 percent, well over levels registered by corporate bond issues of the past few years in eurozone markets; and secondly, the bond’s sustainability terms.

PPC is committing to a 40 percent CO2 emissions reduction by 2022, from 23.1 million tons in 2019 to 13.9 million tons next year. If this goal is not achieved, 50 basis points will be added to the bond’s yield.

The issue’s environmental, social and governance (ESG) factors, even without guarantees, are also a key attraction for investors.

Since the wider outbreak of the pandemic early in 2020, an increasing number of funds have opted to invest in companies observing ESG criteria. Capital amounts invested by funds in companies maintaining ESG criteria have increased by 170 percent since 2015.