Le SLB d'Auchan, il change la vie?

8 minute read

Elo Group (ELOFR), a privately-owned French holding company, has priced its first Sustainability-Linked Bond (SLB). From an environmental point of view, Elo Group’s climate footprint is driven by Auchan, a French supermarket chain.

The food sector is under increased pressure to improve its environmental footprint, particularly because recent EU deforestation regulation requires all products sold in the EU to be from deforestation-free supply chains.

Given that 51% of Elo Group’s revenue was generated in France alone in 2022, this is a material piece of regulation for investors in the company’s debt.

The SLB product commits an issuer to ongoing sustainability reporting, and therefore has the scope to increase transparency in a challenging sector. We also note that while ELOFR will incorporate the guidance from Forests, Land and Agriculture (FLAG) in the future, this creates uncertainty for SLB investors, which may be a driver of the bond’s wide pricing.

We estimate the SLB option to be worth 5bps running for SLB investors, i.e. the SLB should price 5bps tighter than vanilla debt. Current bond spreads suggest the SLB is positioned quite wide compared to traditional debt, and so may be under pricing this option value.