Italian utility Hera issues EUR 500m, BBB, 10 yr green bond to kickstart the Italian market – and it’s 3x over-subscribed. That should encourage Bella Italia

The first Italian green bond was issued last week by Hera, an Italian energy, water and environmental services utility operating in the Emilia-Romagna, Triveneto and Marche regions.

It’s a EUR 500 million, 10 year corporate bond with proceeds ring-fenced for green projects. Hera’s rating is BBB with stable outlook by S&P and Baa 1 negative outlook by Moody’s. Coupon is 2.375%  - yes, that is low..

The bond was three times oversubscribed! That’s certainly further evidence that green bond demand is at the lower investment grade levels as well as higher; next test will be high-yield green bonds.

The majority of orders (75%) for the Hera bond were from non-Italian asset managers, largely from France, Germany and the UK; 69% were “ESG” (Environment, Social and Governance) investors. 

A second opinion was provided by DNV GL.

Bond proceeds will be used to finance - or refinance - investments already made or planned in the following areas:

  1. The “fight against climate change”. This includes:
    • Photovoltaic solar power and biogas power plants (gas from landfill and from anaerobic digestion of the organic portion of urban waste).
    • Energy efficiency investments in district heating and the development of co-generation plants (simultaneous production of thermal and electric energy). 
  2. Improvement of Water-to-Energy plants for waste treatment.
  3. Improve wastewater treatment plants efficiency
  4. Waste cycle management and kit like dumpsters. The idea is to “improve waste collection systems with the aim of maximizing recovery and reducing urban waste in landfills”.   

What do we think of the green credentials? We haven’t yet been able to get hold of the DNV GL report, and they’re generally pretty good, but their statement of assurance was a little equivocal:

“… the eligible projects have the potential to advance the objectives stated above …”

and there is notable lack of information to help us understand why the waste and wastewater assets concerned are good. Do they capture methane gas from their wastewater plants for example? How do we know their recycling is of good quality? And so on. Yes you’re right, clear standards are really needed here.

You can review Hera’s sales PPT here. If we can get hold of the DNV GL Second Opinion will do more analysis for our 6 monthly market report.

Hera will publish annually an account of allocations to each and every project, with evidence also of the environmental performance achieved thanks to the specific investment (e.g. reduction of CO2 renewable energy produced, etc.).

Bookrunners were Banca IMI, BNP Paribas, Barclays, Crédit Agricole CIB, Deutsche Bank, Mediobanca, Banca di Credito Finanziario and UniCredi