VodafoneZiggo has successfully issued its first sustainability bonds worth €2.1 billion under the new Sustainable Finance Framework. With this, VodafoneZiggo is introducing a first-of-its-kind innovative call feature in the sustainable bond market, including an incentive that will apply if the company achieves its sustainability targets. (Conversely, the bonds include an interest rate penalty, customarily applied within the sector if targets are not achieved.) The objectives that have been set, form part of VodafoneZiggo’s People Planet Progress ambition to halve its environmental impact by 2025.
VodafoneZiggo’s financing strategy is directly linked to the People Planet Progress objective of reducing CO2 emissions throughout the entire chain (Scope 1, 2 and 3 emissions) by 50% by 2025 (compared to 2018). The approach to achieve these objectives consists, among other things, of introducing energy-saving measures, such as installing energy-efficient equipment and smarter cooling systems, purchasing 100% green electricity and using green vehicles, such as e-scooters and cargo tricycles, for technicians.
Sustainable capital structure
The Sustainable Finance Framework (“the Framework”) will allow VodafoneZiggo to issue green and sustainable bonds. “By launching our Sustainable Finance Framework, we are further strengthening our People, Planet, Progress ambition to halve our CO₂ emissions by 2025”, said Ritchy Drost, CFO of VodafoneZiggo. “Through the issuance of funding instruments under the Framework, we will continue to build a sustainable capital structure.”
If the sustainability strategy is implemented successfully, this will be rewarded with reduced repayment charges and/or a lower coupon rate. The savings will be reinvested into environmentally-friendly and sustainable projects. “For us, this ‘carrot-and-stick’ method provides an extra incentive to achieve our sustainability targets. By building in a financial incentive, we are introducing an innovative feature that has already been embraced by the financial market”, added Drost.
Alignment with principles and standards
Sustainalytics, a leading global ESG research and rating agency, provided a second party opinion on the alignment of the Sustainable Finance Framework with the Green Bond Principles 2021, the Green Loan Principles 2021, the Sustainability-Linked Bond Principles 2020, and the Sustainability-Linked Loan Principles 2021. In addition, Sustainalytics considers the Framework to be credible and impactful and is of the opinion that the selected SPTs are very strong and highly ambitious. Furthermore, the Science-Based Target initiative states that VodafoneZiggo’s goals will help achieve the reductions required to limit global temperature rise to 1.5°C. This is the most ambitious goal of the Paris Agreement.
The First Sustainability-Linked Notes offering under the Framework
On January 6, 2022, VodafoneZiggo successfully priced its first sustainability-linked notes under the new Framework. The offering consists of $1,525 million 5.0% Sustainability-Linked Senior Secured Notes due 2032 and €750 million 3.5% Sustainability-Linked Senior Secured Notes due 2032 and is expected to close on January 20, 2022. The proceeds of this offering are expected to be used to redeem €2.1 billion (equivalent) of existing debt, consisting of $1,600 million 5.5% Senior Secured Notes due 2027 and €620 million 4.25% Senior Secured Notes due 2027.
The terms and conditions of the bonds state that if one or more objectives are not actually achieved, VodafoneZiggo will pay an increased coupon rate not exceeding 0.25% and increased optional repayment charges of 0.125% from 2026 onwards, until the maturity date. If, on the other hand, VodafoneZiggo achieves both targets, it will benefit from a reduction of the costs by 0.125% if the loan is repaid prematurely. This, in itself, is an innovation within the global bond market for sustainable investments.