UltraTech Cement Comes Up With India’s First Sustainability-linked Bond

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Ultratech cement recently came up with India’s first sustainability-linked bond. The company is the largest cement producer in India and sells 1.6 billion bags of cement per year. It is part of the blue chip Aditya Birla group, which includes Hindalco Industries and Vodafone Idea.


Being a debut issuer with expected ratings of Baa3/BBB– (Moody’s/Fitch), leads looked at other Indian investment grade papers. UltraTech priced around 1bp inside state-owned Indian Railway Finance Corp’s 2.8% 2031s, which were seen at a bid spread of 168bp. 


The 2.8% bonds priced at 99.611 to yield 2.845%, equivalent to Treasuries plus 167.5bp. The spread was at the tight end of final guidance of Treasuries plus 170bp, plus or minus 2.5bp, and well inside initial guidance of 210bp area.


With the environmental angle, the bond got an extra appeal to a credit from a carbon-intensive industry and enabled it to print a larger deal than its US$300m minimum target. The production of cement requires limestone to be heated and mixed with materials like fly ash and granulated blast furnace slag, which are byproducts of coal-fired power plants and the steel smelting process respectively.

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UltraTech aims to emit no more than 557kg of carbon dioxide for every ton of cementitious material it produces by March 31 2030 under a Sustainability Performance Target. This would be a 22.2% reduction from March 2017. Between 2017 and 2020, the company decreased the amount of CO2 produced by 2.8% . If the company misses its sustainability target then  coupon will step up by 75bp

Ultratech also has other environmentally friendly targets, which are not connected with the bonds.It is aiming by 2023 to replenish six times the amount of water its operations consume, and for its concrete production to be carbon-neutral by 2050.

Unlike green bonds, issuers of sustainability-linked bonds are not required to specify an environmentally friendly use for the bond proceeds.

Proceeds will be used for refinancing around US$214m of existing rupee-denominated debt, with the remainder for ongoing capital expenditure requirements and general corporate purposes.

“Given there is a financial penalty when issuers can’t achieve their KPIs, up-front investors might be willing to trade off a few basis points in terms of pricing,” said a banker away from the deal.

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Along with being the bookrunner with HSBC, JP Morgan was the sole global coordinator and sustainability-linked bond structuring agent for the 144A/Reg S offering. The bonds were seen slightly wider in secondary trading, at Treasuries plus 169bp.

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