Odfjell Raises $100 Mil in Shipping’s First Sustainability-Linked Bond
Odfjell, the Norwegian tanker operator, successfully completed the shipping industry’s first sustainability-linked bond offering. The innovative financing structure, which so far has only been used by a few pioneering companies, rewards or penalizes the company for its ability to achieve documented results on preselected targets for its sustainability efforts. Odfjell's offering was linked to its efforts to reduce greenhouse gas emissions.
The tanker company announced last week that it had commissioned underwriters, including DNB Markets, Nordea, and SEB, to begin the bond offering and it was believed they were targeting a minimum of $60 million. Today, Odfjell reported that “the unsecured bond issue was substantially oversubscribed and driven by a high-quality and ESG (Environmental, Social and Governance) focused orderbook.” The company raised $100 million in bonds with a January 2025 maturity date that will be used to refinance existing bonds and for general corporate purposes.
“With this sustainability-linked bond, we prove our strong commitment to reduce emissions and build a more sustainable shipping industry,” said CEO Kristian Mørch. “Odfjell has for many years worked actively to drive change and reduce our carbon footprint, and we are now pleased to see that investors and banks support us through this sustainability-linked bond.”
The sustainability-linked bond marks a first not only for Odfjell and the international shipping industry, but also for the Nordic region across all industries. The bond is also the first to be issued under a newly established Sustainability-Linked Finance framework developed by the International Capital Market Association and released in June 2020 to guide the development of this new market. In completing the offering, Odfjell joins Italy’s ENEL utility which launched the first offering of this kind, and well-known corporations, including Novartis and Channel, that launched sustainability-linked bonds in 2020.
“The shipping industry plays a vital role in the green transition. With Odfjell’s clear commitments, decarbonization strategy, and ambitious CO2 emission reduction targets, they show the way as a leading company in the industry,” said the Joint Lead Managers for the offering at DNB, Nordea, and SEB. “By linking their CO2 emission reduction target with their bond financing terms, they further bolster their commitments and inspire other peers to follow.”
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’s performance will be measured 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 governed the offering, said in its report 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 established annual targets through 2030 for its performance, which will govern the terms of the bonds and the investor’s total return from the offering.