Investors in Czech energy group EPH’s latest green bonds face uncertainty over climate impact, with analysts warning that the €500 million issue could leave them exposed to fossil fuel risks.
The Institute for Energy Economics and Financial Analysis (IEEFA), a global energy policy think tank, highlighted that EPH’s July €500 million green bond, its second following a debut issue in May 2024, “does not appear to target decarbonisation of its largest source of emissions: fossil fuel power generation”.
Much of the proceeds is allocated to refinancing non-power generation assets, leaving investors without much clarity on project-level environmental outcomes, according to IEEFA analysts.
Gas, coal and lignite account for more than 90% of the EPH business model’s power generation capacity, with power plants spanning Germany, Italy, the Netherlands and the UK. While EPH is transferring most of its coal assets to a sister company, IEEFA shared that credit risks associated with these assets are something investors should consider.
“The research finds that the company has yet to demonstrate a strategy to reach its 2050 net-zero goal,” it highlighted.
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EPH has extended its debt maturity profile, with the seven year notes underlining its access to bond markets. 2028 is set to be an important refinancing year, when several of the company’s major loans and bonds are slated for maturity.
“It is likely that EPH’s latest green bonds will barely contribute to the company’s climate strategy,” said Kevin Leung, author of the research and a sustainable finance analyst at IEEFA. “This lowers the bonds’ coherence and highlights the need for investors to closely scrutinise green credentials during asset selection. Investors should also assess whether bond proceeds are used for projects that meet their expectations for measurable, attributable environmental returns.
“EPH stands out among other high-emitting European power companies in that it doesn’t have a clear renewables buildout plan, adding challenges to the company’s fundamentals. EPH faces refinancing needs in the next three years. As transition planning becomes a key credit consideration for lenders, bondholders and credit rating agencies, EPH may face tightening funding conditions if it fails to demonstrate credible progress,” Leung said.
