Deals of the YEar awards
Timing was key to the success of Braskem Idesa’s inaugural sustainability-linked bond (SLB), which not only achieved strong demand from investors but also enshrined ambitious pledges to reduce the company’s carbon footprint.
The $1.2 billion SLB by the Mexican company was placed in October 2021, at a time when investors were still eager for emerging market debt. It was also issued right after the company had wrapped up long-running talks with state oil company Pemex, its main supplier, to renegotiate its gas supply contract.
What's more, the petrochemical industry was going strong at the time, a situation that subsequently reversed in 2022 with an excess of supply in the market combined with weaker global demand.
“We took advantage of the good moment we were living in 2021, compounded by the renegotiation with Pemex, to issue the SLB,” says Danilo Garcez, Braskem Idesa’s CFO.
Demand for the bond, which wins the award for Corporate High Yield Bond of the Year, reached $4 billion, according to Garcez, which motivated Braskem Idesa to increase the size of the deal from an initial range of $750 million - $1 billion to $1.2 billion. As a result, the company was able to deploy only $150 million out of a $600 million loan arranged with commercial banks with the goal of pre-paying existing project finance debt. The 10-year 144A-S senior secured notes will pay a return of 6.99%.
The most remarkable feature of the deal, however, is Braskem Idesa’s commitment to reduce its CO2 emissions by 15% by 2028.
“I am not sure the fact that the bond was a SLB was beneficial in cost terms, but I am sure that it helped to boost demand for the issuance. Investors today require SLB commitments from issuers, and they are right to do so,” Garcez says. “It is an especially challenging target because we will soon be operating at full capacity, which would normally increase our absolute emissions levels.”
To meet the target, Braskem Idesa will invest in improving its operational efficiency by reviewing processes and identifying and measuring where the company generates more CO2 emissions. It will also work on increasing its exposure to renewable energy sources and will invest in a carbon capture project that is set to be announced soon.
Garcez estimates that dozens of millions of dollars in investment will be required in to reach the SLB goals. “But this is a priority for the company,” he concludes. LF
Global Coordinator: Morgan Stanley
Joint Lead Arrangers, Joint Bookrunners: Credit Agricole CIB; Deutsche Bank; Itaú BBA; Morgan Stanley
Financial Advisor: Rothschild
Issuer's Legal Advisors: Paul Hastings; White & Case
Underwriters' Legal Advisors: Galicia; Milbank; Ritch Mueller
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email email@example.com