Sustainability-Linked Bonds make their Australian debut

On 1 June, Engineering firm Worley Limited became the first Australian company to issue Australia’s first Sustainability-Linked bond (SLB), with a €500m five-year Eurobond. BNP Paribas acted as one of two joint lead managers as well as active bookrunner on the transaction.

Worley Limited is a leading global provider of professional project and asset services in energy, chemicals and resources. Given its focus areas and the importance of energy transition and low carbon solutions across all sectors that Worley works, it has ramped up its own internal focus on sustainability.

By issuing an SLB for its inaugural bond issuance – a global first for an issuer to choose an SLB as its first foray into the bond markets –, rather than a green bond or any other type of bond, Worley was seeking investor validation for its long-term sustainability plans and the metrics in place to measure its progress.

“This successful debut issue in the European debt capital markets aligns Worley’s financing with our sustainability strategy and achieves an extension of our long-term debt maturity profile,” said Worley CEO Chris Ashton in a release.

The SLB was issued in accordance with Worley’s Sustainability-Linked Bond Framework which includes one key performance indicator (KPI) based on Scope 1 and 2 emissions for entities and assets controlled by Worley, and a sustainability performance target (SPT) to reduce absolute Scope 1 and 2 emissions by 50% by 2025 from a 2020 baseline. This is in line with Worley’s publicly announced 2030 net zero target.

Positive investor reception pushed order books to more than three times oversubscribed, with final size set at €500 million and a spread at the tight end of guidance. Worley’s SLB is the largest issue size and lowest coupon for any five-year euro issue from a BBB rated Australian corporate.

“The reception to the transaction was aided by the sustainability-linked element but was also due to investor assessments of Worley’s credit and overall transition strategy,” explained Kate Stewart, Managing Director and Head of Debt Capital Markets, BNP Paribas Australia.

 “Investor response to the deal was undoubtedly strong. The book gained momentum early amid a busy market. At final pricing of 125 basis points over mid swap, total bids were over €1.7 billion,” Stewart added.

Sustainability imperative

“This transaction demonstrates how BNP Paribas works with clients in their transition to net zero and finding the most suitable solution for them in sustainable capital markets,” explained Jason Douglas, Managing Director, Corporate Coverage at BNP Paribas Australia. “As pioneers in sustainable finance, we can offer a global perspective through the lens of guidance and expertise tailored specifically to our client, which is especially important when the financing transaction is new to both the company and the market.”

Stewart adds that European investors are becoming more selective in assessing ESG debt instruments – whether use-of-proceeds or sustainability-linked – and that borrowers cannot expect to access the region’s ESG-focused investors without the right structure and features and strong frameworks. The bond was designated as highly ambitious by Sustainalytics.