Nuanced negotiation
Thailand has quickly developed a sophisticated market for ESG finance, and Indorama Ventures’ sustainability-linked bond issue stood out for balancing the goals of its business with the needs of investors.
In October, Indorama, rated AA– by Tris, printed a Bt10bn (US$299.7m) deal, which was split between a Bt3bn 2.48% five-year, Bt2bn 3% seven-year and Bt5bn 3.6% 10.5-year. The book reached Bt17.8bn, which allowed the issuer to raise more than its Bt6bn target.
The petrochemical company’s SLB was Thailand’s second, following Thai Union Group’s Bt5bn seven-year sale in July, but Indorama’s deal brought new elements to the Thai market. It was Thailand’s first SLB to be offered to both institutional and high-net-worth investors, and the first to include additional penalties instead of coupon adjustments.
The tranches of Indorama’s trade needed to be linked to ambitious key performance indicators. The company pledged to cut its greenhouse gas emissions by 10% by 2025 from a 2020 base, increase PET bale input to 750,000 tons in 2025 and achieve 25% renewable electricity consumption in 2030. The first two KPIs were applied to the five-year and seven-year tranches, with a target observation date of December 31 2025. The third KPI, focused on renewable energy, was tied to the 10.5-year bond, with an observation date of December 31 2030.
If the KPIs are not met for the shorter two notes, the company will purchase energy attribute certificates or carbon offsets equal to 20bp per annum. For the 10.5-year notes, the amount is 40bp per annum.
But the Thai Securities and Exchange Commission’s regulations originally only allowed for SLBs to have coupon adjustments if the outlined targets were not met. With those rules in mind, Indorama’s transaction almost had a step-up/step-down structure, but the syndicate banks feared that the structure would not allow for an aggressive enough penalty nor would it suit investor needs.
The syndicate had to work with the regulators to allow for an alternative structure: one that would let the issuer buy EACs or carbon offsets rather than have a step-up. This new feature puts Thailand’s SLB structures in line with the more flexible international standards, and it allowed more investors to participate in the trade, as some are unable to buy into a product with a varying coupon.
Because the SLB market is so new in Thailand and the broader Asian region, Indorama’s transaction required significant investor education. The collaboration with the regulator in this case was just as important as it allowed the market to develop a new structure that may prove to be more popular and accessible for issuers.
Kasikornbank was the structuring adviser for the SLB. It was also joint lead manager with Bangkok Bank, HSBC, Krungthai Bank and Siam Commercial Bank.
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