In attaching green strings to its bonds, Chanel is following the example set last year by Italian utility Enel SpA and more recently Novartis AG, a Swiss drugmaker. The five-year tranche will repay at 100.5% of face value on maturity if the company isn’t wholly reliant by then on renewable electricity, and the 10-year tranche will cash out at 100.75% if Chanel falls short on its greenhouse gas emission targets.
The company is to be applauded for avoiding the “greenwashing” criticism that can be leveled at other so-called sustainable bonds. It achieved “carbon-neutral” status last year as part of its efforts to support the Paris climate change agreement.
Chanel is interesting in that it doesn’t have a credit rating and it probably won’t be eligible for the European Central Bank’s and the Bank of England’s giant bond-buying programs (the company is based outside the euro area and yet the debt was issued in euros). As things stand, Chanel’s U.K.-issued notes won’t benefit either from the ECB’s plan to start buying sustainability-linked bonds next year. But it was still able to cut the coupon on offer during the sale process, and it secured strong demand anyway. Appetite for any kind of yield is still fierce among debt investors, and Chanel is a prized name for a debut bond sale.
While coronavirus has taken a toll on the luxury industry, Chanel is in fashion’s premier league with more than $12 billion of net sales in 2019. The bond market has rewarded that. The price on the deal’s five- and 10-year maturities was tightened by 25 basis points to 95 and 125 basis points over their respective benchmarks, giving an implied rating that’s comfortably within the investment-grade bucket. Demand for the bonds was respectable at nearly three times the deal size.
Having previously relied on private debt and bank loans, Chanel is coming to the public markets to refinance some of the 600 million pounds ($765 million) of Covid loans it has repaid to the BOE. So we probably shouldn’t read too much into what the bond debut says about the controlling Wertheimer family’s plans for the company. There has been speculation (denied by the Wertheimers) about an initial public offering or sale. Even if that isn’t the intention, it doesn’t hurt to have a profile in the debt markets.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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