Evergreen navigates maiden ESG voyage
Taiwanese container shipping company Evergreen Marine sailed into the US dollar bond market for the first time on Thursday with a US$300m green bond.
The 5.25% three-year deal attracted investors for its rarity – a new issuer, a largely quiet sector in Asia's credit market and an industry that is grappling with a transition to more sustainable practices. The transaction was also the first from an Asian shipping company to reference the EU Taxonomy for green bonds, though CSSC (Hong Kong) Shipping, a subsidiary of China State Shipbuilding, sold US$500m five-year dual-certified green and blue bonds in 2021.
"It's a very successful maiden voyage," said Tim Fang, head of DCM for Greater China at global coordinator Credit Agricole.
The deal has been in the works for some time, well before the war in the Middle East disrupted shipping through the Strait of Hormuz, and Evergreen had spent time educating investors. It gave the market additional notice by announcing the trade on Tuesday before releasing initial guidance on Thursday at Treasuries plus 190bp area, 30bp wider than where the notes priced.
"We just don't know what's going to happen with the market so when we saw a short window in the market, we took it," said Fang.
Starting in January, Evergreen briefed investors about its business and green financing framework, as well as the sector more broadly. Questions arose when the Iran war started at the end of February but bankers on the deal said the company was able to explain how it is managing the situation.
"Overall, people are getting more familiar with the credit for sure, and also realise that what happened recently can benefit the shipping industry," said a syndicate banker on the deal.
The Drewry World Container Index, which tracks freight rates on major shipping routes, has rallied in recent weeks as supply chain disruptions have driven up freight costs.
Transitioning to bonds
Evergreen has natural US dollar needs but it has relied on loans in the past. Aside from the industry's recent challenges, it had to familiarise investors with its unrated credit and green ambitions.
Proceeds from the deal will be used to purchase 16,000-TEU class methanol dual-fuel container vessels that meet the criteria for low-carbon vessels in its green financing framework.
"They thought about really diversifying their funding channels away from traditional loans," said Fang.
The industry's reliance on bank and leasing financing is one reason there have not been more green bonds from the sector, said Jeannette Leong, research associate for APAC at Anthropocene Fixed Income Institute. "As fleet renewal creates a clearer pool of eligible green assets, the sector could see more labelled deals, particularly where proceeds are tied to newbuild vessels."
The shipping industry, like aviation, is largely reliant on fossil fuels, but also fulfils an essential role in supply chains. AFII said "the key is to view it through a transition lens and focus on mobilising capital to jumpstart that transition".
Leong said Evergreen could increasingly use the green bond market for funding as fleet renewal progresses. The new bonds are "aligned with international standards such as the International Capital Market Association, supporting its broader decarbonisation efforts", she said.
During the investor work, global coordinators Credit Agricole, DBS Bank, ING and OCBC steered investors to consider the company as an investment-grade credit and pointed to other shipping companies with investment-grade and high-yield ratings.
"A lot of investors wanted [the bond] rated, but they were able to live with the unratedness," said a second banker on the deal. Other aspects of the deal's rarity, including the company's roots in Taiwan, also triggered interest.
The range of investor feedback on the spread was broad, roughly 140bp–190bp, said the second banker. He estimated fair value around 150bp.
"That was the key, investor education," said Fang.
The bonds priced at 99.674 to yield 5.369%, 160bp over Treasuries. They traded up around 99.90 in the secondary market on Friday.
Evergreen could have pushed another 5bp–10bp tighter, or to US$500m but wanted to keep investors happy and encourage secondary trading.
"The issuer was prepared to do US$300m to make sure that everybody understood the credit and the bond is priced relatively correct," said the second banker.
Orders peaked at US$2.1bn and settled at US$1.9bn from 97 accounts, including US$370m from leads. Asian investors were allocated 89% and EMEA 11%. Asset managers took 56%, banks 21%, hedge funds and traders 17%, and private banks and others 6%.
Evergreen Marine (Asia) issued the senior unrated bonds, which are guaranteed by the parent.
Additional reporting by Hui Ting Yong