Odfjell Plans Bond Offering Tied to Achieving Decarbonization Goals

Odfjell first shipping company to use bonds linked to sustainability goals
Odfjell is planning to refinance with bonds tied to its decarbonization performance (file photo)

Published Jan 7, 2021 4:37 PM by The Maritime Executive

Norway’s Odfjell, the parent company of the chemical tanker and terminal operator, is launching a debt financing using an innovative new bond instrument linked to the company’s ability to achieve its sustainability goals reducing the carbon intensity of its tanker operations. The innovative bond structure introduced to the capital markets in 2020 is designed to appeal to “green investors” by linking financing with encouraging companies to develop and meet sustainability goals. 

Odfjell said it would begin presentations to fixed income investors next week for a potential “sustainability-linked NOK denominated four-year senior unsecured bond.” The company is believed to be targeting raising at least $60 million with the potential for the offering to double depending on the appetite of green investors for the first shipping company to use this instrument. Proceeds from the bond issue will be used for general corporate purposes, including refinancing of existing bonds.

“The potential bond issue will be linked to Odfjell’s fleet transition plan and ambition to reduce the carbon intensity of its controlled fleet by 50% by 2030 compared to 2008 level,” the company said. 

Sustainability-linked loans are already commonplace, with the law firm Clifford Chance estimating that the market had already reached $122 billion by the end of 2019. In June 2020, the International Capital Market Association issued a voluntary set of guidelines designed to open the bond market to the growth seen in the sustainability loan market. Italy’s ENEL utility launched the first offering of this kind and in 2020 other well-known corporations, including Novartis and Channel launched sustainability-linked bonds. Odfjell would be the first shipping company to issue these instruments.

The guidelines for such an offering include several key components for companies that contribute to sustainability from an environmental, social, or governance perspective. The offering hinges on the company selecting key performance indicators and calibrating sustainability performance targets to achieve the goal. The framework for the offering is verified by an independent third-party and the issuer commits to reporting and verification to ensure the measurement of the performance targets.

What makes these bonds unique, and is attracting the interest of green investors, is that the financial or structural characteristics of the bond vary depending on achieving the selected sustainability performance targets. For example, the interest rate might be adjusted based on the ability to meet the targets while other terms might include margin adjustment, coupon adjustment, or re-payment amount adjustment. 

Odfjell has chosen to measure performance through its Average Efficiency Ratio (AER) of the Controlled Fleet in gCO2 per tonne nautical mile. DNV GL, which was retained to provide the outside opinion on the framework which governs the offering, says that the AER is a widely used metric in shipping to monitor and report the annual operational performance efficiency of a ship. The AER is calculated by multiplying the vessel’s actual fuel consumption with the carbon factor of the fuel consumed and divide this by the DWT of the vessel multiplied by the distance traveled. Odfjell has also established annual targets through 2030 for its performance.