French telecoms company Orange beat the crowd on Monday with a debut sustainability-linked bond that arguably priced inside fair value and gained a seven-times-covered book at its peak.
The €500m no-grow 12-year trade was boosted by great timing, according to a lead, coming on a relatively quiet day in the primary market and ahead of another big wave of supply that is expected over the rest of the week. The pipeline is building quickly, with four more issuers being added to three mandates that were already outstanding. Bankers expect supply this week to come in to at least €10bn or so, while one DCM head said volumes could go as high as €15bn.
Timing, however, was not the only reason behind Orange's successful transaction. Moody's revised its outlook on the company to positive from stable in June on its Baa1 rating, citing its solid and resilient operating performance in a difficult and competitive macroeconomic environment. The outlook also reflects Orange's predictable financial policy and well-crafted strategy that underpin sustainable operating cashflow, the rating agency said. Orange also has BBB+, stable ratings from the other two main agencies.
Orange's September 2035s landed at mid-swaps plus 72bp, inside initial price thoughts of 105bp–110bp and tightening 8bp from guidance. Fair value was estimated at around 75bp based on comparables that included the company's 1.625% July 2032s and 0.75% June 2034s that were bid at 56bp and 67bp, respectively.
Final demand dropped to over €1.95bn from more than €3.5bn at the peak. Credit Agricole was the sole ESG structuring advisor as well as global coordinator with ING and SMBC. They were also active bookrunners with Barclays, Deutsche Bank, Goldman Sachs, La Banque Postale and Standard Chartered.
The capped issue size, positive broader market tone and ESG label also helped, the lead said.
Orange’s debut SLB is a rare example of the format in the telecoms sector. The company is committed to be net zero carbon on all scopes by 2040.
The bulk of the company’s emissions are in Scope 3. Orange’s digital segment emitted 7.4m tons of CO2 in 2021. Scope 3 emissions accounted for 82% of the total, while Scope 1 and 2 were 4% and 14%, respectively.
The deal has three KPIs focusing on reducing absolute greenhouse gas emissions in the digital segment and two social KPIs focusing on women in management networks and the number of external beneficiaries of digital support and training.
The first KPI is aiming to reduce absolute emissions on Scope 1, 2 and 3 by 45% by 2030 compared to 2020. The two social KPIs are focusing on 35% of women in management networks by 2025, in line with representation in the company and reaching 6m external beneficiaries of digital support and training by 2030.
The coupon will step up by 25bp a year after 10 years until maturity if the company meets none or only one of the SPTs, with a maximum cumulative step-up of 75bp.
The transaction has a second-party opinion from Moody’s and will be verified by Orange’s external auditor after issuance.
The four mandates announced on Monday include one from Tikehau Capital, an investment firm that straddles the financials and corporate divide. It was joined by Swedish locks company Assa Abloy, French payments firm Worldline and Spanish infrastructure company Ferrovial.
In total, there are seven mandates in the public pipeline, with three others announced last week. They are from German tourism and retail group REWE; the company that was formerly Royal Mail, International Distributions Services; and German biopharmaceutical firm Sartorius. More deals are likely to follow.
Updated story: Adds final order book size