Post Market Wrap | Fortescue raises US$1.5b, including US$800m Green Bonds

This Post Market Wrap is presented by KOSEC – Kodari Securities

• Proceeds (US$700M) to fund Iron Bridge magnetite project & (US$800M) to fund Eligible Green Projects.     
• Green Bonds provide investors with same security, liquidity and credit risk as corporate bonds.
• Green Bonds are used to finance renewable energy, pollution prevention, land management, clean transportation and wastewater management projects.
• Global banks, mutual funds and pension funds seeking to meet their corporate social responsibility obligations to their constituents, are among Green Bond investors.

Fortescue Metals Group Ltd (‘Fortescue‘ or the ‘Group‘) is Australia’s third-largest iron ore producer, conducting its operations in the Pilbara region of Western Australia, from three mining hubs that are supported by fully integrated rail and seaport facilities located at Port Headland. These facilities are complemented by a tug fleet and eight purpose-built 260,000 tonne capacity Fortescue Ore Carriers. 

The Group has recently embarked on a decarbonisation strategy and is progressing to become an integrated player in the renewables and green resources sector, on a global scale. It is currently developing a global portfolio of renewable energy and green hydrogen projects. The strategy seeks to use 100 percent renewable energy to produce green electricity, green hydrogen, green ammonia and other green industrial products, to de-carbonise the steel, power generation and transport industries. This strategy is in support of Fortescue’s stated intention to achieve carbon neutrality in its own operations by 2030 and in its customers’ operations by 2040.

US$1500 million Corporate Bond Offering

Fortescue has raised US$1500 million across two tranches to fund its ongoing growth initiatives, including the Iron Bridge growth project and its Eligible Green Projects.  One tranche of the bond issue, for US$800 million, are Green Bonds. The remaining US$700 million tranche are senior corporate bonds. The Green Bonds have a ten-year term and pay an interest rate of 6.125 percent while the remaining bond tranche has an eight-year term and will pay 5.875 percent per annum. The issue was launched by Fortescue on 6 April and closed fully subscribed on the following day. 

The senior corporate bonds will be applied to Fortescue’s Iron Bridge project, which will be one of the world’s most efficient and technologically advanced magnetite producers. Magnetite is an essential component for steel manufacture. The Green Bonds will be used to finance Fortescue’s Eligible Green Projects. These projects are outlined in the Group’s Sustainability Financing Framework, which describes Fortescue’s decarbonisation initiatives. These include renewable energy, energy efficiency, storage, clean sea and coastal freight transport initiatives. One such initiative is the 150MW solar 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 a significant point because it ensures that a Green Bond provides investors with the same security, liquidity and credit risk, meaning they offer similar yields, credit ratings and return profiles, to other fixed income investments. The only difference is Green Bonds fund projects that are making a tangible and measurable impact in the effort to address the environmental challenges brought on by the effect of climate change. Green bonds are commonly used to finance energy efficiency projects, renewable energy. pollution prevention and control projects, natural resources and land management projects, clean transportation projects and wastewater and water management projects.

This is the investor appeal of Green Bonds to institutional investors including banks, mutual funds, pension funds, and some hedge funds, seeking to meet their corporate social responsibility obligations to their constituents.   

Looking Ahead

The significance of this successful bond issuance program is that it demonstrates the continuing institutional investor support for Fortescue’s decarbonisation strategy.

This investor support combined with Fortescue’s strong balance sheet leaves the Group well placed to rapidly advance its portfolio of green energy projects and decarbonisation technologies that benefit shareholders as well as the planet.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.