PepsiCo is joining the charge to make green bonds more mainstream as the soft drinks giant embarks on a debut green bond issue.
The company is offering senior unsecured green securities, according to a filing on Monday. The 30-year bonds may yield around 95 basis points above US Treasuries, after initially discussing a spread of around 110 points, according to a person with knowledge of the matter.
Pepsi plans to invest the proceeds in sustainable development goals as defined by the United Nations, including eco-friendly plastics and packaging and cleaner transportation. The packaged food and beverage company already has about $34 billion (Dh124.9bn) of debt outstanding, but this will be its first green bond.
The company’s existing 30-year bonds due in 2049 currently trade about 94 basis points wider than similarly-dated Treasuries, according to Trace bond price data. The new notes will likely price closer to outstanding bonds, especially given the green attributes of Monday’s debt, CreditSights analysts James Dunn and Ben Morgan said in an earlier report.
Also working in Pepsi’s favor is that it’s a well-known, highly-rated issuer that is in the market often and that people understand, said Tony Trzcinka, a portfolio manager at Impax Asset Management, which specialises in sustainable finance.
“It’s important on the corporate side for most investors that these are benchmark-type issues with seasoned issuers that are investment-grade quality,“ Trzcinka said. “It’s something that fits right in, so it’s a very easy bond to buy.”
Green bonds are a small fraction of the $5.8 trillion US investment-grade corporate bond market, but increasing in popularity as companies develop initiatives to combat climate change. Over $120bn worth of green bonds were issued in the first half of 2019, up from $85bn in the last six months of 2018, according to BloombergNEF.
Pepsi's rival Coca-Cola, issued a sustainability-linked loan in June 2015, and both companies have pledged to use more recycled plastic in their bottles over the next decade. Sustainable debt tools like green bonds are a potential way for beverage companies to fund transition activities toward a more environmentally and socially sustainable future, said Daniel Shurey, head of green finance at BloombergNEF.
“A key example would be using a green bond to finance the improvement of water and wastewater management, which is a material environmental factor for beverage companies,” Shurey said.