RWE, whose coal mine in western Germany was the scene of protests last month by climate activists including Greta Thunberg, sought to re-establish its ESG credentials with a €1bn dual-tranche green bond offering on Monday.
The deal shows that investors have sufficient confidence in the company's green strategy despite the furore over the mine in Luetzerath. Its operations in the village demonstrate the tension at the heart of German politics following Russia's invasion of Ukraine: between the need for energy security and the country's commitment to ESG.
As part of its deal with the government, RWE (Baa2/–/BBB+) will begin to demolish the village to extract lignite in return for accelerating its exit from coal by eight years to 2030.
The controversy could have proven a big hurdle for the company's fundraising. But while some accounts did not participate, the offering still got a peak book of more than €4.7bn, though demand had fallen to €3.9bn by the end.
"A couple of accounts are a bit squeamish but everyone is cognisant of the need for energy security," said a lead after books opened.
The issuer is no stranger to the green market. "RWE is not new doing green bonds and it’s a regular green bond issuer. They are also a good example that benefits from both energy security and energy transition concerns," said a second lead.
Still, it is a company that splits opinion. One of Europe's biggest investors told IFR, for example, that the company "is on our exclusion list".
"Of course, not every investor can participate in RWE because of the coal exposure and the press around that in Germany," said a third lead. "But it will become the biggest German utility for green assets in 10–15 years, so it will be the greenest utility we have in Germany. As an investor you have to check the current portfolio, and some are unhappy with coal exposure, but there will be an exit from coal – it will become the German Iberdrola."
The company has been growing its renewables business thanks to its purchase last year of Con Edison Clean Energy Businesses, almost doubling its renewables portfolio in the US to more than 7GW of operating assets.
Leads began their pricing strategy cautiously, with IPTs on the €500m February 2029s at 115bp area over swaps and the €500m February 2035s at plus 160bp area, though calculating fair value was not straightforward given the inversion in the swap curve, making credit curves steeper.
"Before, you had ultra-flat curves for normal Single As. Between five and seven years it was only 5bp, between 10 and 20 years only 5bp. Now, for Single A, it’s at least 5bp a year – spread curves and credit curves look more interesting for investors at the moment," said the third lead banker.
The leads took RWE's May 2026s and May 2030s, which were issued last year, as the best reference points for the six-year tranche. Those two bonds were bid at plus 45bp and 95bp, respectively, and leads put fair value for the February 2029s at plus 77bp. They then applied 50bp for the curve between six and years, making fair value for the February 2035s at plus 127bp.
Given the size of peak books, leads were able to tighten aggressively to final spreads of plus 80bp on the 2029s and 128bp on the 2035s.
"It was a very balanced investor base for both tranches, though with the longer tranche the UK orders were behind the slightly bigger books. It was similar to other deals, where the longer tranche worked very well," said the third lead.
Books for the 2035s were €2.1bn and €1.8bn for the 2029s. How many of those orders came from dedicated green accounts was hard to tell. "It’s hard to have visibility on the ESG-dedicated funds, though all the big asset managers were coming with ESG money and were involved in this trade," said the second lead.
Morgan Stanley was global coordinator, joined on books by BayernLB, BBVA, DZ Bank, Helaba, RBC Capital Markets and UniCredit.
(Additional reporting by Robert Hogg and Jihye Hwang.)