Novartis Raises €1.85 Billion From Bonds With Interest Rate Tied to Sustainable KPI Targets

Reuters  |

Image source: Novartis

By Yoruk Bahceli

AMSTERDAM (Reuters) - Novartis raised 1.85 billion euros on Wednesday from the sale of a bond on which interest payments will rise if the drugmaker fails to expand access to medicines and programs to combat malaria and leprosy in a number of developing countries.

Investors are increasingly pushing companies to improve their track record on environmental, social and governance (ESG) issues while sustainable investing grows in popularity, spurring an increase in sustainable debt issuance year after year.

Novartis’ bond is only the third issue to date to link payments to creditors to company-wide sustainable development targets.

Italian utility Enel pioneered the structure in late 2019, tying interest payments to key performance indicators (KPI), and Brazilian pulp and paper maker Suzano sold a heavily oversubscribed $750 million carbon emissions-linked bond less than a week ago.

The Swiss drugmaker received 3.25 billion euros of demand for its eight-year bond, which priced with a 0.08% yield, according to a lead manager.

Unlike green bonds - the biggest financing vehicle in the sustainable investment space which links funds to specific environmentally-focused projects - sustainability-linked bonds are tied to goals at the company level.

While Enel and Suzano’s linked interest payments to climate-related goals, Novartis is the first company targeting a social goal.

It will have to pay an additional 25 basis points in interest payments after 2025 if the company fails to achieve either of its two targets - a threefold increase in access to a number of drugs and a 50% increase in access to its programmes targeting diseases like leprosy and malaria in lower middle income countries.

“Today’s announcement is another important step on our journey to integrate ESG into the core of our business, measure our progress, hold ourselves accountable, and demonstrate our dedication to making good on our promise to broaden global access to our medicines,” Novartis CEO Vas Narasimhan said in a statement.

Reporting by Yoruk Bahceli; editing by Kirsten Donovan

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Source: Reuters

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