JSW Steel has created history by being the first company in the steel sector globally to issue a Sustainability Linked Bond ("SLB") in a hard currency. The Company raised a total of USD 1BiIIion in the USD Bond markets through a RegS/144A issuance which was subscribed by high quality institutional investors across Asia, Middle East, Europe and the US.
The issuance comprised two tranches of 5.5 years and 10.5 years, each for an amount of USD 500 mn. The 10.5-year tranche was issued as an SLB where the Company committed to achieving an ambitious target of 1.95 tonnes of CO per tonne of crude steel produced (tCO2/tcs), by March 2030, representing a 23% reduction from its 2020 levels. This target has been certified by DNV, an independent international agency that has opined that JSW’s targets are ambitious and beyond what is considered business as usual.
As per the SLB terms, if the company is not able to meet these targets by March 2030, the pricing on the bonds will be stepped up by 37.5bp for the residual life of the bonds. The SLB structure helped the Company attract ESG focused funds thereby giving it a size and price benefit. The SLB is a win-win for both issuers as well as investors - it benefits investors by giving them an avenue to invest in socially responsible companies while providing the right incentive structure to companies to improve their ESG performance and diversify their resource base for long term financing. This path breaking move by JSW is likely to set the tone for the Indian steel industry to proactively move towards reducing its CO emission footprint with the ultimate goal of achieving net zero.
The issuance which mobilised USD 1biIIion across both tranches was handsomely oversubscribed. The 10.5yr tranche which was priced at 5.05% achieved a greater tightening of 45bps as compared to the 5.5yr tranche that was priced at 3.95% and achieved a tightening of 42.5bps, against the initial price guidance. This is also the first issuance in 144A format from the Indian steel sector and thereby attracted high quality US institutional investors. The proceeds of the issue will be used by the Company for funding capex plans as well as for refinancing of debt. JSW Steel is rated Ba2 (Positive) by Moody’s and BB- (Positive) by Fitch.
Seshagiri Rao, JMD and Group CFO, JSW Steel, said: “Sustainability is at the heart of the JSW philosophy and we have always been at the forefront of incorporating sustainability in our core operations in order to improve climate impact performance. The target set by JSW is significantly steeper than that committed as per the India’s Nationally Determined Contributions (“NDC") and is aligned with the Sustainable Development Scenario (SDS) pathway by way of targeting a 42% reduction of CO2 emission intensity from the base year of 2005. The overwhelming response that we received on the SLB issuance is testimony of stakeholder confidence in JSW’s commitment to climate change mitigation.