Commodity finance house of the year: Societe Generale

Energy Risk Awards 2021: Bank brings environmental finance expertise to series of groundbreaking transition projects

Federico Turegano, Societe Generale

With energy transition firmly in mind, Societe Generale was involved in several groundbreaking energy project financings across the commodity complex over the past year, particularly in the low and zero-carbon space.

Even with the volatility across commodity markets last year, Societe Generale saw growing interest in transition-linked markets, a key area of focus for the bank going forward.

“Traditionally, during a crisis and when the price of oil drops, investors step away from renewables and energy transition topics, but that did not happen last year,” says Federico Turegano, global head of natural resources and infrastructure at Societe Generale . “For us, that was confirmation that the world is ready to move forward and prepare for the energy transition.”

Over the course of 2020, the bank was financial adviser, underwriter or mandated lead arranger for 60 renewable transactions that totalled over €3 billion ($3.5 billion) – a 20% increase on 2019.

In the growing liquefied natural gas (LNG) space, the bank was involved in key projects in Africa, including the Mozambique LNG project – one of the three largest oil and gas project finance deals in the last decade. It also supported an innovative hybrid non-recourse corporate financing for Nigeria LNG’s Train 7.

Interest in markets such as hydrogen, carbon capture and storage, and electric vehicles also continued to grow. To capture the latter in particular, the metals and mining group expanded its coverage into the downstream industry for low-carbon solutions last year.

It played a leading role in the first project financing for a greenfield lithium-ion battery manufacturing plant, the Northvolt gigafactory in Sweden. The $1.6 billion debt financing package, signed in July 2020, was provided by commercial banks, pension funds, private equity, the European Investment Bank and several export credit agency (ECA) guarantees.

Such projects have traditionally been financed on corporate balance sheets, says Stephanie Clement de-Givry, head of metals, mining & industrials at Societe Generale, but this has started to change as different types of investors seek exposure to these markets. As a result, she believes projects like Northvolt are pioneering a new asset class.

“We are seeing a new wave of investment into the industry, which is seeking leverage,” she continues. “Northvolt has demonstrated the potential for raising significant levels of equity from investors such as private equity and industrials, as well as attracting ECAs and commercial banks for debt. It has clearly been a proof of concept for this new industry.”

The bank also continued to support the development of the European renewable energy markets last year, playing a leading role in two major offshore wind projects. It was mandated lead arranger (MLA), hedge provider and execution bank on the first two stages of the UK’s Dogger Bank Wind Farm, a $5.5 billion financing project. Dogger Bank is set to be the world’s largest offshore wind farm and will power six million UK homes. Societe Generale also co-underwrote France’s second offshore wind project, Fécamp, in a €2.418 million non-recourse financing.

Societe Generale was also MLA and hedge provider for the €132 million non-recourse financing of Sweden’s Björkvattnet onshore wind farm, which closed in March 2020. While Google will buy most of the electricity produced via a corporate power purchase agreement (PPA), the project financing also had to account for merchant risk.

These deals position the bank to participate in the coming evolution of the renewable energy sector, particularly in Europe, as renewable markets start to see more corporate PPA activity, according to Olivier Musset, global head of energy at Societe Generale.

“With Europe’s subsidy regime, in most cases, projects were insulated from merchant risk,” he says. Going forward, assessing asset sustainability will require an in-depth knowledge of individual markets. “Particularly for refinancing of assets where the subsidy regime is almost gone, you have to take a view on the sustainability of the asset in relation to merchant risk,” Musset says. “That must be done on a case-by-case basis, depending on the asset and market.”

Societe Generale’s activity in sustainability-linked loans requires the bank to plumb similar depths of knowledge and expertise. Last year, it pioneered sustainability-linked loans for metals producers in markets including Russia, acting as sole sustainability coordinator for the conversion of a €200 million pre-export finance facility into a sustainability-linked loan for iron ore producer Metalloinvest.

“We have seen a massive increase in interest from clients including oil and gas companies, commodity traders and miners,” Turegano says. “If clients are committing to make changes and become more sustainable, we need to be there to support them, but also to challenge them and ensure they keep these commitments.”