Striking a balance
South Korean chipmaker SK Hynix brought something new to the market when it sold its US$2.5bn triple-tranche bond deal in January, offering investors a choice of conventional, green or sustainability-linked notes.
The transaction was one of the most creative when it came to meeting not only the needs of the issuer, but also those of investors.
Aware that there was plenty of investor demand at the short end, SK Hynix, rated Baa2/BBB– (Moody's/S&P), kept its US$750m 6.25% three-year bond conventional, and it landed at Treasuries plus 240bp.
SK Hynix tied a green label to its US$750m 6.5% 10-year tranche to draw demand to the long end, making it the trade’s most popular portion. Orders reached US$5.8bn from 321 accounts, and the tranche priced at Treasuries plus 310bp.
A separate sustainability-linked tranche, which was a first for South Korea, came at a five-year tenor and the size of US$1bn far surpassed the issuer’s plan to print US$500m. The 6.375% 2028s garnered US$5.5bn of orders from 304 accounts and priced at 275bp over Treasuries.
The balance of green and SLB bonds in the same transaction was unique and helped create price tension. The green tranche tightened a hefty 50bp from initial guidance, while the other tranches compressed 40bp.
SK Hynix had a limited amount of green assets that could be tied to a use-of-proceeds bond, but had a transition plan and a new ESG strategy framework which was announced in 2022. In late 2022, SK Hynix became a founding member of the Semiconductor Climate Consortium and pledged with other companies in the sector to use more renewable electricity, as well as focusing on water conservation.
SLBs have become more highly scrutinised, as investors examine whether goals are ambitious enough and step-ups are sufficient to incentivise issuers. In SK Hynix’s case, the coupon will step up by 75bp should the borrower fail to achieve its targets by 2026. That is much larger than the 25bp more commonly seen on SLBs, to make up for the fact that it will apply only to the final coupon.
For the key performance indicators, SK Hynix plans to reduce its Scope 1 and Scope 2 greenhouse gas emissions intensity by 57% from its 2020 baseline. The five-year tenor was chosen for the SLB portion as that would best match up with the KPIs being measured.
SK Hynix obtained two second-party opinions from DNV and Moody’s.
BNP Paribas, Bank of America, Citigroup, Credit Agricole CIB, HSBC, MUFG and Standard Chartered were the joint bookrunners.
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