Issuance-heavy steel giant in India plans to switch to green debt

(Bloomberg) – Indian group JSW, which manages high-emission companies including steel, cement and energy, plans to convert the majority of its bonds into green instruments as the industrial giant seeks access to longer-term borrowings.

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Raising overseas debt through green and sustainability-linked bond issuances will see the tycoon-led group Sajjan Jindal nearly double its 10-year term as longer-term funding increasingly difficult for companies raising funds in India, said Seshagiri Rao, the group’s chief financial officer. in an interview. There is a “high probability” that the company will only sell sustainability bonds or green bonds within the next five years, he said.

Green bonds are instruments used to raise funds for environmentally friendly projects. SLBs, on the other hand, can be used more widely, but are linked to sustainability goals such as reducing carbon emissions. In India, companies including JSW are more often issuing these bonds overseas because the local market is not as mature. Sales of Indian bonds with green or sustainability labels totaled around $6.9 billion in 2021, up from $875 million the previous year, according to data compiled by Bloomberg.

Companies around the world are increasingly raising sustainable debt through instruments linked to their environmental goals as pressure mounts from investors and regulators. In the metals and mining sector, billionaire Andrew Forrest’s iron ore giant, Fortescue Metals Group Ltd., raised funds through a green bond earlier this month.

For JSW, which has at least $2.15 billion in international bonds maturing by 2027, tapping the overseas market would be crucial as Indian lenders are wary of longer-term lending to the infrastructure sector following a persistent slowdown in credit, aggravated by a crisis in the shadow banking industry a few years ago.

The group – with an annual revenue of $13 billion – raises a third of its funds through bonds and the rest through export credit agencies and external commercial borrowing, Rao said. .

“More and more investors, banks and the entire financial system will look to invest only in ESG-compliant companies and in companies that have a roadmap of how they will reduce their emissions” , Rao said from his office in Mumbai. “Otherwise, fundraising itself will become difficult in the future. The company must therefore evolve in this direction.

GO GREEN

The group has raised approximately $1.6 billion through SLBs and green bonds. Last year, flagship JSW Steel Ltd. raised a $500 million SLB that was tied to its ability to reduce emissions from three plants in India by around 23% to around 1.95 tonnes of carbon dioxide per tonne of crude steel produced by the end of the decade. . The target took into account emissions from the company’s own production – scope 1 – and energy consumption – scope 2. JSW will have to pay a one-time coupon of 37.5 basis points if it does not meet the commitments.

The group has announced plans to spend $1 billion to reduce emissions from its steel mills and 750 billion rupees ($9.8 billion) to shift its energy business, JSW Energy Ltd., from coal to renewable sources.

As changes in industries such as the group’s steel and cement operations – traditionally among the biggest polluters – are being made against the backdrop of India’s national target to become carbon neutral by 2070, a large part of the push is led by foreign investors and customers. .

Indian company JSW Steel to spend over $1 billion to reduce emissions

For JSW Steel, which sells about a quarter of its total exports to Europe, the region’s plans to impose a border tax on carbon-intensive imports such as steel and aluminum add further momentum to its emission reduction plans, Rao said.

The factory is automating its processes to measure carbon emissions in real time against the monthly data it currently collects, in preparation for the new rule before shipping products to Europe, Rao said. The steel unit has reduced its overall emissions by almost 27% since 2005, he said.

“Right now, the whole strategy is to continue to grow and to ensure that carbon emissions are comparable to the rest of the world in terms of the steelmaking process in the blast furnaces,” said Rao.

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