Slovenia has recently issued a ten-year sustainability-linked bond (SLB) on international capital markets in the amount of one billion euros, with a coupon rate of 3.125 percent and maturity on July 2, 2035. This is the first issuance of such bonds in Slovenia and in this part of the world, issued under the Republic of Slovenia’s Sustainability-Linked Bond Framework (the Framework). The bond thus carries a fixed coupon interest rate with a possible mechanism for increasing or decreasing the final coupon, depending on the achievement of the targets set out in the Framework. The key indicator is the total annual greenhouse gas emissions, according to the website of the Slovenian Ministry of Finance.
Sustainability Target 1.1: a reduction of total greenhouse gas emissions by 35 percent by 2030 compared to the baseline level from 2005.
Sustainability Target 1.2: a reduction of total greenhouse gas emissions by 45 percent by 2030 compared to the baseline level from 2005.
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Therefore, if Sustainability Target 1.1 is not achieved and Slovenia does not reduce its total annual greenhouse gas emissions by at least 35 percent compared to the 2005 level, the interest rate will increase by 50 basis points nine years after the settlement date, which will be July 2, 2025. Conversely, if Sustainability Target 1.2 is achieved, and emissions fall by more than 45 percent, the interest rate will decrease by 50 basis points.
Overall, the new bond applies an increase/decrease mechanism, whereby the final coupon payment is linked to Slovenia’s climate goal. According to the bond terms, the interest rate increases by 50 basis points if Slovenia does not achieve the lower reduction threshold of 35 percent, while it decreases by 50 basis points if the upper reduction threshold of 45 percent is achieved.
As for the geographical distribution of investors: 23 percent of the bond was purchased by investors from the United Kingdom and Ireland, 20 percent from Belgium, the Netherlands, and Luxembourg, 15 percent from Germany, Austria, and Switzerland. This is followed by Southern Europe with 12 percent, Slovenia with 11 percent, Nordic countries with 9 percent, France with 5 percent, while 2 percent of the allocation was purchased by investors from Central and Eastern Europe.
Although recent weakness in the SLB market was noted, demand for the bond was evident, with the offer exceeding demand by more than six times.
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