2019 Integrated Report

BNP Paribas grants Másmóvil the first leveraged
Sustainability-Linked Loan

BNP Paribas helps companies improve their Environmental, Social and Governance (ESG) performance by offering loans based on compliance with extra-financial criteria. More.

Sustainability-Linked Loans (SLLs) are increasingly popular and BNP Paribas was one of the first financial institutions to promote them. The special feature of these positive-impact loans is the incentive they give companies to improve their ESG performance by correlating the loans’ financial terms to predefined extra-financial goals.

BNP Paribas’ Corporate & Institutional Banking (CIB) teams designed, through their Corporate Banking activities, an innovative, tailor-made solution for Másmóvil, which in July 2019 was granted the first SLL in the form of a leveraged SLL (leverage uses a company’s debt to increase its investment capacity and return on equity).

Másmóvil is Spain’s fourth-largest telecoms operator with over eight million customers. It is active in fixed and mobile telephone and internet services and has its own network infrastructure for optic fibre as well as 3G and 4G, allowing the company to cover almost the entire Spanish population.

A TAILOR-MADE SLL

With BNP Paribas as sole coordinator for the ESG aspects of the financing, the SLL has a two-fold objective: ensuring Másmóvil achieves its goal to transition to a more sustainable growth model, notably in response to investor demands for transparency and sustainability; and enabling BNP Paribas to increase its positive impact on society and the environment.

The SLL is firmly adapted to the needs of Másmóvil and the first linked to a Standard & Poor’s ESG rating. The €1.7 billion financing comprises a €1.45 billion loan, a €100 million revolving-credit facility and €150 million capex (capital expenditure) line. The loan strengthens the long-term relationship between the Group, its business lines and Másmóvil. For example, BNP Paribas Personal Finance and Másmóvil have obtained authorisation from the Bank of Spain to launch mobilebased financial services for retail customers.

DEMANDING ESG CRITERIA

Under this original mechanism, extra-financial risk has the same level of requirements as financial risk. As a result, the interest rates on the loan are linked directly to Másmóvil’s ESG rating, which was 67/100 when the SLL was granted. This rating is used as a reference point to assess the annual variations in the interest rate of the capex and revolving-credit facility. If the ESG rating is downgraded, the interest rate on the loan rises. Conversely, if the rating improves, the interest rate falls. The “bonus-penalty” mechanism linked to a company’s ESG performance thus has a strong incentive effect.

INCREASED ATTRACTIVENESS 

By aligning financing conditions with CSR performance, companies with an SLL are responding to growing investor interest in this type of ESG rating. Companies therefore need to set concrete, measurable, easy-to-understand objectives and be transparent about their CSR strategy in order to achieve a rapid return on investment that will in turn result in a more favourable interest rate. The financial incentive to meet sustainable-development goals boosts customer confidence and employee engagement with respect to a company’s sustainable-development strategy. The resulting win-win result contributes to the company’s overall attractiveness.

SLLs are a key sustainable-finance product. In 2019 the number of SLLs undertaken by the Group amounted to 60 transactions, with BNP Paribas contributing more than €6.2 billion. The use of SLLs and other innovative products benefiting the environment and society contributed to the Group’s recognition as the “Most Innovative Investment Bank for Climate Change and Sustainability” (The Banker 2019).