India’s Larsen & Toubro may explore another ESG bond issue after debut attracts premium, spokesperson says

Indian infrastructure major Larsen & Toubro could raise funds through environmental, social and governance bonds again, after its first-ever issuance of the notes was sold at a premium, a company spokesperson said on Wednesday.

In the debut bond sale under India’s newly-introduced ESG debt securities framework, L&T on Wednesday raised 5 billion rupees ($58 million) through three-year notes at a coupon of 6.35%.

This compares with 6.45%-6.50% secondary market yields on the company’s near three-year bonds, according to merchant bankers.
“We remain open to raising more funds through ESG-linked issuances…,” the spokesperson told Reuters. “Should the need arise, and if market conditions are conducive, we may consider the ESG debt market again.”
The notes, rated AAA by Crisil, saw banks and mutual funds as investors, the spokesperson said.

SBI Mutual Fund was the anchor investor and bought at least 750 million rupees of the bonds, bankers said. The fund house did not reply to a Reuters email seeking comment. “We were able to achieve beneficial pricing on this ESG bond issuance compared to our plain vanilla bonds. The strong investor interest in credible ESG-labelled instruments helped us price the bond attractively,” the L&T spokesperson said. The deal signals that credible ESG-labelled issuances can secure premium pricing purely on the strength of transparency and investor confidence, said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.

“Going ahead, this could open the gates for more corporates to access the ESG bond market, and issuers with strong sustainability credentials may benefit from favourable pricing.”