Peter Ruth

Investors piled into the German grid operator’s first issuance on the international capital markets. It is now eyeing a sustainable bond in 2022. Danielle Myles reports.

The green transition is often associated with high-profile individuals and companies driving the global environmental agenda. Less recognition is granted to the army of silent players working behind the scenes to bring their ambitious and important ideas and goals to fruition. The world’s transmission system operators (TSOs) are but one example. TSOs have been charged with upgrading electricity grids that were designed for fossil fuels into a system that supports large amounts of renewable energy. This task not only involves building more power lines, but also a more digital and flexible system to accommodate the intermittent nature of wind and solar power.

In countries like Germany, which are making big strides towards a fully a decarbonised energy system, these upgrades are an imminent challenge. “This is currently the most important part of our work,” says Peter Rüth, chief financial officer of Amprion, one of the country’s four TSOs. “And it is a big task given Germany’s renewables targets,” he adds. Indeed, the incoming coalition government has maintained longstanding plans to phase out nuclear power by 2022, increased renewables generation targets and wants to close coal-fired plants by 2030.

Transition investments

Amprion’s work in supporting the energy transition has increased its normally modest funding needs. Its day-to-day operations require minimal liquidity, so the firm’s finance requirements are driven by its investment strategy. In the past, its annual capital expenditure has been around €300m to €500m, but it reached €760m in 2018, around €780m in 2019 and exceeded €1bn for the first time in 2020. The firm expects its annual investments to rise even further in the near future.

We are now growing very strongly ... which creates additional funding needs

“Historically, we have very strong internal financing from our cashflows, equity, and some Schuldschein and German-registered bonds. That has been enough for our investments,” says Mr Rüth. “But we are now growing very strongly ... which creates additional funding needs.” This, he says, is why Amprion decided in 2021 to turn to the international capital markets for the first time.

A safe bet

The firm began considering an international bond early in the year, in light of its upcoming grid investments. In May, it launched a new debt issuance programme and four months later it brought its first deal to market. Amprion’s two-day digital roadshow started on September 13 with a global investor call attended by around 70 bond-buyers and banks, and ended the next day with investor meetings.

On the morning of Monday September 15, the firm launched an €800m 12-year bond at 90 basis points (bps) over mid-swaps. After being three-times oversubscribed, the deal was tightened to 58bps over mid-swaps with a 0.625% coupon. UniCredit and Commerzbank were global coordinators and, alongside ING and SEB, were also active bookrunners. They were assisted by DZ Bank, Helaba, Landesbank Baden-Württemberg and BayernLB as passive bookrunners.

The demand and pricing far exceeded the firm’s expectations for its international bond debut. Yet it is easy to identify the source its success. “A lot of people had been waiting a long time for Amprion’s first bond. Plus, everyone knows we have a truly green business model, and safe regulatory profits and returns,” says Mr Rüth. “I think that makes this business attractive.” The firm only invests in projects that have been approved by Germany’s utilities regulator, the Federal Network Agency, which acts as a further reassurance for investors.

Enabling a green future

Another reason for the deal’s success is, quite simply, the market’s belief in Amprion’s work. “Investors understand that we are the enabler for the energy transition,” says Mr Rüth. “If we want to phase out coal-fired power, we need to restructure the grid. That means, among other things, building new powerlines.”

The buy-side can rest assured that Amprion’s appearance on the international markets will not be a one-off. “Our investment needs continue to rise, so we will be a frequent issuer in the bond market. It’s very clear that it will be at least once a year, perhaps sometimes twice a year,” says Mr Rüth. Over the next 10 years, the company plans to invest €24.3bn in its transmission grid. Bonds with tenors of 12–15 years, or even longer, are a good match for its investment projects which are often amortised over decades.

For its first time tapping the international market, Amprion opted for a conventional bond, but has also laid strong foundations to enter the burgeoning sustainable finance market. Its business is aligned with the EU’s Taxonomy for Sustainable Activities, and in 2021 it provided its first sustainability report in accordance with the German Sustainability Code. 

The next step is receiving an ESG rating. “This is part of the firm’s very short-term strategy,” says Mr Rüth. He does not plan on waiting too long before putting that rating to use. “We are definitely looking at a sustainable bond in 2022,” he says. “That is the clear target.”

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