- Proceeds ($700 million) to fund the Iron Bridge magnetite project and ($800 million) to fund eligible green projects.
- Green bonds offer investors the same security, liquidity and credit risk as corporate bonds.
- Green bonds are used to fund renewable energy, pollution, land management, clean transportation and wastewater management projects.
- Green bond investors include global banks, mutual funds and pension funds looking to meet their corporate social responsibility obligations to their clients.
Fortescue Metals Group Ltd (“Fortescue” or the “Group”) is Australia’s third largest iron ore producer and operates in the Pilbara region of Western Australia from three mining hubs supported by fully integrated railway and seaport facilities at Port Head. These facilities are complemented by a fleet of tugboats and eight purpose-built Fortescue Ore Carriers with a capacity of 260,000 tons.
The group has recently launched a decarbonization strategy and is becoming an integrated player in the field of renewable energy and green resources on a global scale. It is currently developing a global portfolio of renewable energy and green hydrogen projects. The strategy aims to use 100 percent renewable energy to produce green electricity, green hydrogen, green ammonia and other green industrial products to decarbonize the steel, power generation and transportation industries. This strategy supports Fortescue’s stated intention to achieve carbon neutrality in its own operations by 2030 and in its customers’ operations by 2040.
$1,500 million corporate bond issue
Fortescue has raised $1,500 million in two tranches to fund its ongoing growth initiatives, including the Iron Bridge growth project and its eligible green projects. One tranche of the $800 million bond issue are green bonds. The remaining $700 million tranche is senior corporate notes. The green bonds have a term of ten years and bear interest of 6.125 percent, the remaining bond tranche has a term of eight years and bear interest of 5.875 percent pa. The issue was launched by Fortescue on April 6 and closed with full subscriptions the following day.
The senior corporate bonds will be invested for Fortescue’s Iron Bridge project, which will be one of the most efficient and technologically advanced magnetite producers in the world. Magnetite is an essential component for steel production. The Green Bonds will be used to fund Fortescue’s eligible green projects. These projects are outlined in the group’s Sustainability Financing Framework, which describes Fortescue’s decarbonization initiatives. These include initiatives for renewable energy, energy efficiency, storage, clean maritime and coastal freight. One such initiative is the 150 MW solar power generation component of the Pilbara Energy Connect project.
What are green bonds?
Green bonds are identical to corporate bonds in that they are backed by the issuer’s entire balance sheet and are priced accordingly. This is an important point as it ensures that a green bond offers investors the same security, liquidity and credit risk ie they offer similar yields, credit ratings and yield profiles as other fixed income investments. The only difference is that green bonds fund projects that make a tangible and measurable impact in efforts to address the environmental challenges caused by the impacts of climate change. Green bonds are often used to finance energy efficiency projects and renewable energy. Pollution prevention and control projects, natural resource and land management projects, clean transportation projects, and wastewater and water management projects.
Such is the appeal of green bonds to institutional investors, including banks, mutual funds, pension funds and some hedge funds, eager to meet their corporate social responsibility obligations to their constituents.
The significance of this successful bond issuance program is that it demonstrates continued institutional investor support for Fortescue’s decarbonization strategy.
This investor support combined with Fortescue’s strong balance sheet positions the group to rapidly advance its portfolio of green energy projects and decarbonization technologies that benefit both shareholders and the planet.
This Post Market Wrap is presented by Kodari Securities and written by Michael Kodari, CEO of KOSEC.