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CORP VIEWPOINT: ESG haul falls just shy of record, hybrid supply lowest since 2016

15 Dec 2022 | Matthew Barrett

ESG haul falls just shy of record, hybrid supply lowest since 2016

As we surmised earlier in the week, euro IG/split-rated corporate supply is now done for the year meaning we are set to finish at EUR247.345bn, marking the lowest annual total since 2014.

That compares to EUR329.988bn in 2021 which was the third highest annual total on record and even further adrift of 2020's record-breaking EUR443.5145bn which was the first time ever that the EUR400bn mark was surpassed in a single year.

Whilst overall supply was down, it was another bumper year for ESG corporate supply which tallied EUR89.02bn, just shy of last year's all-time record of EUR92.17bn.

That means ESG supply accounted for some 35.99% of 2022's overall corporate haul, compared to 27.93% in 2021.

Looking more broadly, overall ESG supply in the single currency fell to EUR316.16bn this year across all sectors versus the all-time high of EUR387.93bn set in 2021.

That is in line with a more measured year on the whole for euro bond activity with EUR1.22tn having priced across all asset classes in 2022, down from the EUR1.39tn in 2021 and EUR1.48tn in 2020.

Annual EUR ESG Issuance

This year's ESG corporate haul once again comprised a mixture of green, transition, social, sustainability and sustainability-linked bonds.

Green bonds continued their dominance, accounting for a bumper EUR61.45bn (69.03%) of the corporate ethical total, which compares to 59.23% last year.

The newer SLB format once again took second place with EUR20.57bn (23.11%), although that was a decrease of the portion seen in 2021 at EUR26.8bn (29.08%).

ESG Corp Supply 2022

Amongst those to issue green debt this year was Dutch borrower TenneT, which cemented itself as the biggest corporate issuer of euro green bonds this year.

Having printed the largest EUR IG/split-rated corporate bond of the year in May (EUR3.85bn four-part green), TenneT again hit the market in October (EUR3bn three-part green) in what was the joint-fourth largest corporate offering of 2022.

Largest EUR Corp Deals 2022

Whilst ESG bonds were popular with issuers, they also remained popular with investors which threw plenty of cash at the trades despite ongoing uncertainty in broader markets.

That is exhibited by the average cover ratio seen across this year's ethical corporate trades that came in at 3.44x. That compares to smaller 3.25x recorded across all the asset class's 2022 single currency bonds.

As shown by the table below, six of ten the most subscribed bonds came in ESG format and all were green bonds.

EDP took the accolade for the largest euro corporate cover ratio of the year, with its EUR500m Mar 2030 greens from 4-Oct amassing a blowout book of EUR6.5bn (13.5x subscription).

Largest EUR Corp Cover Ratios

Stronger demand didn't translate into smaller premiums though with the average NIC across 2022's ESG corporate trades finishing up at 14.47bps versus the aggregate 13.72bps.

Both of those averages were dragged lower by Orsted's EUR500m no grow 1000NC6 green hybrid which landed well inside fair value on a near 10x covered book. At around minus 25bps, Orsted secured funding with the smallest corporate NIC of 2022.

In fact, the top three smallest NICs across the asset class were all recorded on hybrid trades this year, with the aforementioned EdF offering pricing 12.5bps inside reoffer, a level which Telefonica (EUR750m PNC6) also matched.

Smallest EUR Corp NICS 2022

All three of the hybrids were launched late in the year when broader market conditions were more accommodative, and the trio felt more comfortable in offering the riskier product.

Investors jumped at the chance to gain exposure to what were huge yields on offer and the strong demand helped drive down the final NICs paid.

As well as the attractive returns on offer to investors, the paucity/rarity of hybrids this year certainly helped drive interest.

The trio lifted year-to-date euro corporate hybrid paper to just EUR12.2bn, marking a sharp slowdown from 2021's EUR36.8bn and the lowest annual total since 2016.

That came with many corporates having shunned the higher beta product amid bouts of volatility and higher costs, with the asset class seeing no activity at all between April and September.

Yearly Euro Corp Hybrid Supply

Source: IGM