One of the most closely watched corporate issues on the Italian market was triggered on January 16: that of the sustainability-like bond of Eni, the domestic oil giant controlled 30 percent, by Mef and Cdp. This is a “green” issue in that it is tied to the achievement of Eni’s ecological transition goals. If these goals are not met, investors can receive an extra return.
Since Eni is one of the leading companies in the perimeter of the so-called state industry, it comes naturally to compare the risk and return conditions offered by Eni’s bond with the Btp of the same maturity, five years.
The characteristics of the Eni bond being issued
Eni’s bond aimed at retail customers has a minimum denomination of €2,000 (which can be increased with €1,000 denominations), a five-year maturity (maturing on February 10, 2028), and no subscription fee. Like any bond, it provides for the repayment of the entire principal invested plus the payment of a fixed periodic coupon of not less than 4.3 percent. The total issue will amount to €1 billion, extendable up to €2 billion in case of excess demand.
The yield is considered sustainability linked as the interest rate at maturity is linked to targets for reducing net greenhouse gas emissions associated with the Upstream business and increasing installed capacity from renewable sources. In more detail, Eni aims to achieve the following:
- Net Carbon Footprint Upstream (Scope 1 and 2) equal to or less than 5.2 million tons of carbon dioxide equivalent as of December 31, 2025 (i.e., down 65 percent from the 2018 baseline);
- an installed capacity for renewable electricity generation of 5 gigawatts or more as of December 31, 2025.
“In case of failure to achieve even one of the two targets, the interest rate related to the coupon payable on the maturity date (February 10, 2028) will be increased by 0.50 percent, in the manner described in the Prospectus.”
There is time until January 20 for the online channel to subscribe to Eni’s bond, until January 27 for the off-branch offer (with a licensed advisor visiting your home), and until February 3 for an in-branch subscription.
Comparison with the five-year Btp.
Interest in BTPs has increased dramatically in recent months, as evidenced by online search volumes monitored by Google. Rising yields have become attractive to many investors, including professionals, who expect to see rising prices (and falling yields) in the coming months.
Whether this will happen remains a particularly hotly debated topic in light of the reduction in the ECB’s balance sheet, which would force the Treasury to roll over maturing bonds while being able to count on less demand from the central bank.
“Considering the minimum yield of 4.3 percent of the new Eni bond, this turns out to be higher than the Btp of the same maturity (five years), which stands at about 3.5 percent,” commented for We Wealth Rocco Probo, analyst and consultant at Consultique Scf, “an investor. However, one must also consider the impact of taxation on their investment, and the two bonds are treated differently, given that the corporate bond is burdened by 26 percent, while the taxation on the government bond’s yield is 12.5 percent. So considering the net yield, the two bonds are practically equivalent.”
Is that all? Not exactly. “However, the yield is not the only dynamic to be considered: the rating of Eni, thus the creditworthiness judged by the rating agencies, is, in fact, higher than that of the Italian state considering that Fitch and S&P assign the company a rating of A- and Moody’s equal to Baa1,” Probo said. This means that a crisis of confidence in the Italian state, given its high debt, could more likely cause future surges in yields that reduce the value of the bond – a detriment that is felt when the investor, for various reasons, decides to sell it at market price before its natural maturity.
