Italy ‘analysing’ Enel’s sustainability-linked format
Italy is considering the sustainability-linked bond format pioneered by Italian electricity and gas company Enel, but Davide Iacovoni, head of Italy’s debt management office, thinks the structure may not suit the sovereign’s priorities of ensuring liquidity and maximising reach.
“We followed Enel’s deal very carefully,” he said. “We think it is an experience that needs to be analysed in depth.”
However, he pointed out that, in the green bond market, “most investors would prefer to buy a product where the proceeds are spent on green expenditure, rather than one that brings an incentive to perform in terms of CO2 emissions, etc.”
Enel’s bond, a $1.5bn five year, offered a 25bp coupon step-up if, by the last day of 2021, Enel fails to increase the percentage of its electricity generation from renewable sources to 55%. The level was 46% when the bond was sold in October 2019.
The bond does not carry a commitment that proceeds will be spent on green projects.
Iacovoni also said he believes that a bond with a structured coupon could put off investors, and that focussing on a traditional green bond was the best way to maximise Italy’s reach to the broadest selection of market participants. However, the topic is still under discussion and Italy has not yet ruled out any issuance format.
Another problem with the sustainability linked format is that it its status for repo purposes is not yet clear. Iacovoni highlighted that ensuring Italy’s debt products are easily quoted and traded was a priority, saying “On the ground, it seems to us that standard green bonds are better [in this respect].”
He added: “The fact that we are not aware of any sovereign issuer moving towards a product like this suggests that other sovereigns agree with our reasoning.”
Iacovoni is also keen to join the “club” of sovereign green bond issuers, rather than creating an “Italian specific product”.