08/02/2023
5 minute read
Energy company Enel is a flagship issuer of Sustainability-Linked Bonds (SLBs). Due to its early adopter status, it also has the most SLBs with imminent Sustainability Performance Target (SPT) observation dates.
We have earlier concluded that the issuer’s Dec 2022 renewables targets would probably be met, primarily due to divestments of Russian assets, but its Dec 2023 emissions targets looked less achievable. Media reports brought into focus the question of whether the 2022 target had indeed been met.
This note presents market pricing on the SLB in question, ENELIM £1 27s, whose coupon would step up 25bp depending on whether the issuer had achieved 60% renewables installed capacity by year-end 2022. We analyse both current levels and recent moves and interpret pricing into market-implied probabilities for SPTs being met or missed. ENELIM £1 27s trade rich to the sterling curve, at a level which remained relatively unchanged through 2022.
Attributing this all to SLB option premium implies a probability of 72% of missing the target. Our view remains that it will likely make the target, but this shows uncertainty in the market.
When the result is confirmed, we would expect a price movement as the market digests confirmation of whether the step-up will be paid or not.
This would provide a useful first data point on SLB trigger reactions in a more liquid bond market.
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