Tesco was this year’s winner in the Bonds Below £750m category with a €750m 8.5-year sustainability-linked bond and concurrent liability management exercise. Announced in January 2021, the transaction came with no shortage of milestones: it was the first sustainability-linked bond from a UK corporate, the first such bond in the retail sector and the first to be listed on the London Stock Exchange’s sustainable bond market.
The bond formed part of the company’s environmental, social and governance-linked financing strategy that had been approved in July 2020. While Tesco had planned to refinance its February 2022 maturity from summer 2021, it then identified an opportunistic transaction to undertake a debt-funded liability management exercise. As the necessary documentation had already been prepared, the company was able to accelerate its plans for a sustainability-linked bond issuance by nine months.
The bond used Tesco’s existing Scope 1 and Scope 2 emission-reduction targets, aligned with a 1.5-degree trajectory. The final orderbook was seven times oversubscribed, which enabled pricing to be tightened and resulted in a coupon of 0.375%. The proceeds were used to fund a liability management exercise, which targeted nine bonds across USD, EUR and GBP, with €640m of debt repurchased for a cash cost of €840m.
A framework and second-party opinion (SPO) were created specifically for the project, with the SPO confirming that the targets were ambitious, and that the framework aligned with the ICMA Sustainability-Linked Bond Principles. As a result of the transaction’s success, Tesco was subsequently able to issue in the sterling market using the same KPI, with no further marketing required.
Provider: BNP Paribas, Citibank, MUFG and Royal Bank of Canada were joint bookrunners and dealer managers; BNP Paribas and Citibank were sustainability coordinators.
Structure: €750m 8.5-year sustainability-linked bond and a debt-funded liquidity management exercise.
“The Tesco bond was exceptional and a clear winner in this category; the pricing was very low, and the pre-planning that had taken place allowed the team to take advantage of opportunistic timing.”