Total, the Paris-based energy major, is using hybrid bonds to expand a natural gas partnership into renewables in India with the Adani Group conglomerate, which holds a number of green energy assets.
Total agreed to acquire 50% in a 2.35 GWac portfolio of solar assets owned by Adani Green Energy Limited (AGEL) and a 20% stake in AGEL itself as part of a $2.5 billion investment deal. Total has financed the deal – part of a larger shift in strategy to renewables – with 3 billion euros in hybrid bonds.
“The renewable connection can lower the coupon a bit,” said Elchin Mammadov, senior equity research analyst for European Utilities at Bloomberg.
Hybrid bonds are a combination of debt and equity that allow companies to issue debt without stretching their balance sheet in the eyes of ratings agencies. This is achieved by extending fewer guarantees to the holder. The tradeoff is companies must pay hybrid holders a higher coupon. Total sees the instrument as competitive.
“These hybrid bonds provide a cost of capital comparable to that of pure players in renewables and is therefore suited to finance acquisitions in this business,” according to Total Chief Financial Officer Jean-Pierre Sbraire. “These bonds will finance in a very competitive way our development in renewables.”
Total issued €1.5 billion with a 1.625% coupon with a 7-year first call date and a second €1.5 billion at 2.125% coupon with a 12-year first call date. The proceeds will be used mainly for renewables acquisitions, in particular €1.7 billion for the acquisition of a 20% share in Adani Green Energy Limited, Total said.
That will help to smooth Total’s strategy shift from oil to focus on renewables and natural gas, as governments globally seek to reduce carbon emissions. And this is exactly what is playing out in India, where the new deal builds on an existing partnership in natural gas distribution, liquified natural gas terminals and utilities.
“Given the size of the market, India is the right place to put into action our energy transition strategy based on two pillars: renewables and natural gas,” said Patrick Pouyanné, Chairman and CEO of Total.
AGEL has more than 14.6 GW of contracted renewable capacity, with an operating capacity of 3 GW and another 3 GW under construction and 8.6 GW under development. The company aims to achieve 25 GW of renewable power generation by 2025.