E.ON issues first green following taxonomy alignment

Corrects E.ON 2019 adjusted net income

By Ed Clark

LONDON, Mar 25 (IFR) - E.ON on Thursday brought its first green bond to market since it aligned its framework with the EU Taxonomy with the strong demand allowing the borrower to raise funding flat its secondary curve.

The German utility (Baa2/BBB) was the first corporate to fully align its green financing framework with the EU Taxonomy, updating its documentation in February.

“The EU Taxonomy has increasingly become an important part of public discussions and the investor response was overwhelmingly positive and throughout the process it was well perceived,” said an official at E.ON.

“Aligning with the EU Taxonomy entails both making sure all your assets or projects are eligible as green, they have to contribute to one of the environmental objectives, but to be taxonomy-compliant they also cannot do harm to any of the other objective.”

Whether or not this alignment had much of an impact on the execution of the new trade is hard to determine, but ABN AMRO, Bank of America, Societe Generale and UniCredit were able to set the spread on the €750m 11.5-year at 57bp over mid-swaps, paying no premium, according to one lead. Books reached €2bn, but fell to €1.3bn following the price revisions.

“We looked towards their existing green deals, their longest is a slightly long 10-year which is at 56bp, so fair value would be just a little bit higher,” said the syndicate banker.

Analysts at CreditSights, however, put fair value at 50bp–55bp and also said that they would have bought the bonds down to this level.

“The EU Taxonomy alignment is a nice factor to have – I doubt it is a make or break for any investor, though,” said a DCM banker away from the deal. “That said, for investors, that additional clarity and the easily identifiable requirements it has is certainly helpful.”

The €500m 20-year sustainability-linked green bond issued by Austrian utility Verbund earlier this week was also aligned with the EU Taxonomy.

E.ON already had a robust ESG profile. It carries an AA ESG rating from MSCI and is Germany’s largest corporate green bond issuer. It has also signalled that 80%–85% of its future investments will be EU Taxonomy aligned.

Through funding raised under the issuer’s framework, the company invests in projects that improve and make more environmentally friendly its distribution networks, renewable energy production and storage, energy efficiency initiatives and clean transportation.

During the early stages of the deal’s execution, bankers highlighted that it could be E.ON’s last benchmark bond issue of the year. The utility has indicated that its funding needs are below €2bn this year and in January it issued a €600m 0.1% January 2028. However, given the new benchmark raised €750m, there is potentially room for one more.

E.ON has come through the Covid-19 pandemic relatively unscathed. It reported solid full financial year results earlier this week, announcing adjusted net income of almost €1.64bn, compared to €1.53bn in financial year 2019.

“Good results financially, while E.ON has also reported some success in turning around the loss-making supply business in the UK and has achieved €130m of the €780m synergies planned for 2024,” wrote BNP Paribas analysts.

“We expect E.ON to achieve its deleveraging targets and view it as a high-quality, low-risk utility.”

(Reporting by Edward Clark, editing by Philip Wright, Helene Durand, Robert Hogg)

((e.clark@refinitiv.com; +44 (0)792 053 1666))