The energy transmission and exchange group EPSO-G went public on the capital markets on Wednesday and issued a sustainability-linked bond issue, and in this way is set to raise EUR 75 million. This is the first sustainability-linked bond issue in the Baltic States.
The five-year bonds with a yield of 3.117% were purchased by institutional investors from Lithuania, Latvia, Estonia and Sweden. The European Bank for Reconstruction and Development (EBRD) purchased almost one third of the issue for EUR 22.5 million.
According to Algirdas Juozaponis, CFO and interim CEO of EPSO-G, the funds raised will be used to finance strategic energy projects implemented by the group of companies, and, at the same time, to strengthen Lithuania’s energy independence. “The issuance of sustainability-linked bonds has allowed EPSO-G to diversify its financing portfolio and will make a significant contribution to EPSO-G’s sustainability goals, ensuring greater reliability of the transmission grids, the reduction of the environmental impact, and the acceleration of the enablement of climate-neutral energy”, said Algirdas Juozaponis.
Sustainability-linked bonds are a recent innovation in the international bond markets. The borrowing conditions for the issuance of this type of bonds depend not only on a company’s financial sustainability, which is indicated by its credit rating, but also on the environmental, social and governance sustainability goals it has set. If the company was to fail to meet these targets, the actual cost of servicing the debt would be higher.
In preparation for the bond issuance, the rating agency “Moody’s Investors Service” has assigned Baa1 credit rating with a stable outlook to EPSO-G. The assigned high investment grade rating reflects the strong financial position of the state-owned Group, its relatively low debt level and the fact that the majority of its revenue derives from regulated transmission network activities.
This year, EPSO-G announced a long-term sustainability-linked finance framework, which includes long-term sustainability indicators and targets relevant to the Group. EPSO-G has also committed that funds raised under the framework will not be used for investments in the expansion or modernisation of the natural gas network.
EPSO-G’s announced sustainability-linked finance framework has been independently assessed by the international climate and environmental research centre “CICERO Shades of Green”. It confirmed that the EPSO-G framework complies with international principles for sustainability-linked bonds and loans. The independent assessment identifies the sustainability objectives of the EPSO-G framework as ambitious compared to those set by other similar companies operating in Europe. These objectives are also established as largely in line with the Paris Agreement’s targets for reducing climate change impacts.
“Swedbank” took care of the organisation and issuance of the bond issue. “The successful issuance of the first sustainability-linked bond issue is a historic event in the Baltic capital markets. Today, EPSO-G is an example for other local companies how to turn sustainability-linked goals into a real, measurable ambition and secure the support of investors. We are pleased to have been able to contribute to this process and look forward to EPSO-G fulfilling the expectations of investors, shareholders and the public to strengthen the country’s energy system and at the same time reduce its environmental impact”, said Jonas Kvedaravičius, Head of Investment Banking at “Swedbank”.
As part of its operational strategy, EPSO-G plans to invest around EUR 1.6 billion between 2020 and 2030. It is expected that around half of the total investment required will be financed by own or borrowed funds, with more than a third coming from EU financial support and the remainder from other sources of funding, the bulk of which will come from congestion revenues. In 2021, the EPSO-G Group’s investments in energy transmission infrastructure, irrespective of payment terms, amounted to EUR 97.1 million.
The EPSO-G group of companies consists of the management company EPSO-G, five directly owned subsidiaries Amber Grid, Baltpool, Energy cells, Litgrid and Tetas, and the indirectly controlled GET Baltic. The rights and obligations of the sole shareholder of EPSO-G are exercised by the Ministry of Energy of the Republic of Lithuania.