Wind turbine maker Vestas closes $2.4 billion “sustainability-linked” credit facility

Wind turbine manufacturer Vestas has secured a credit facility worth $2.4 billion that for the first time ties the company's performance to "sustainability-linked" best practices.

The Danish firm announced on 29 April that the financial package, agreed among a consortium of banks and totaling €2 billion, will support "general corporate purposes." The loan has a five-year term as well as two options for one-year extensions.

Linking sustainability metrics with its borrowing terms is a first for Vestas, the company said.

The innovative terms may be the result of heightened competition among wind and other clean energy technology manufacturers, according to Indra Mukherjee, a senior analyst on the Global Power and Renewables team at IHS Markit.

For Vestas, the link between finance and sustainability centers on the facility's interest rate margin, which will increase or decrease based on certain performance targets. While Vestas offered few specifics on which targets those would be, the company identified reducing the carbon footprint of its operations and manufacturing as a primary focus of sustainability measurement.

Mukherjee said the new cash as helping assure liquidity and mitigating the impact of increasingly low margins on wind turbine sales globally, as renewables growth is fueling a "highly competitive, auction-driven environment" worldwide.

Debt vehicles like these "enable vendors to do the investments necessary for chasing growth," he said.

The company, though, sees the new capital as a critical tool in its push to be a sustainability-driven, and sustainability-driving, wind developer worldwide.

"Strengthening our financial capabilities is the next natural step in this journey," said Marika Frediriksson, Vestas' executive vice president and chief financial officer, in a press statement. "Linking interest rate margins with Vestas' sustainability performance reinforces our ambition to integrate sustainability" into company processes.

The funds will be available as a multi-currency, revolving credit facility, from a broad set of leading banks. HSBC Continental Europe and Skandinaviska Erskilda Banken acted as lead arrangers for the deal. At least 10 other major European and US banks are involved.

In a suggestion of Vestas' expanded ambition for its business and sustainability profile, the $2.4-billion facility nearly doubles a previous revolving loan, agreed in 2017, for $1.4 billion. The company never used the 2017 package.

The new debt will spur progress toward Vestas' longer-term climate goals. The company aims to be a carbon-neutral company by 2030 by reducing absolute emissions, rather than relying on easier-to-achieve carbon offsets. The company has also targeted recycling as a means of reducing the carbon footprint from its manufacturing supply chain. Wind turbines are built mostly from steel, a carbon-intensive material.

While recycled steel and other materials make up 85% of Vestas' turbines today, according to company data, the firm plans to reach 100% recycled components use in the next two decades, under its "zero-waste turbines by 2040" plan.

Vestas' sustainability commitments also reflect the stringent climate policies of Denmark, where the firm is headquartered. The Scandinavian country has pledged to cut greenhouse gas emissions by 70% from 1990 levels by 2030. Denmark has likewise pledged to cease from new oil and gas production forever.

Worldwide, Vestas said it holds a total of 132 GW of wind capacity—or 17% of the global total. Only about 6 GW of Vestas' wind portfolio is offshore. The company is present in more than 80 countries.

The firm did not immediately respond to a request for detail on the sustainability-linked aspects of the credit facility.

Vestas will hold its 1Q2021 earnings call on 5 May, which may offer more information on what the company plans to do with its new capital.

Posted 03 May 2021 by William Fleeson, Senior research analyst for Executive Briefings, IHS Markit