

Citi, Bank of America (BofA) and Commerzbank are lead arrangers for an inaugural USD offering by one of the world’s largest exporters of seaborne thermal coal, despite all three having made 'Net Zero' pledges.
Russia’s largest coal producer, SUEK, has this week begun sounding out investor interest for a senior unsecured dollar-denominated bond with a tenor of five years. It is yet to disclose how much it aims to raise through the issuance.
The move is a pivot away from its long-standing strategy of securing financing through syndicated loans and Rouble-denominated bonds. SUEK has entered the syndicated loan market for dollar funding every year since 2006 with the exception of 2015, according to Global Capital.
SUEK did not respond to RI’s enquiries.
The three banks join a syndicate of nine joint lead bookrunners, which include Alfa Bank, Bank of China, Gazprombank, Renaissance Capital, Sberbank and CTB Capital.
The paper has been rated BB(EXP) by Fitch, which noted in commentary that “ESG issues are credit-neutral or have only a minimal credit impact on the entity”. Fitch anticipates that SUEK’s coal sales volumes will increase by high mid-single digits in 2021-2022 on the back of mining expansion and sales to Asia.
According to Dmitri Kazakov, the report’s Primary Rating Analyst, the impact of ESG factors was limited due to strong global demand for the commodity.
“Coal has a significant GHG footprint, but is not going to disappear or dramatically shrink in absolute terms if we speak about global markets – with Asian markets being somewhat laggard in this reduction pace compared to Europe, for example,” he said to RI.
“Therefore, ESG remains credit-neutral for the company, whose exports are towards both Europe and Asia and might be further re-oriented to Asia or certain non-EU EMEA countries over the next three-five years.”
Commenting on the news, Dr Tom Steffen, Head of Quantitative Research at London-based ESG shop Osmosis Investment Management, said: “There is no evidence that SUEK would use the proceeds from the bond sale to drastically change its business model to become part of a green transition. Any business that is currently not preparing to be part of a 2℃ or even 1.5℃ world will be a bad investment as it will be exposed to the risks of climate change and the economic, political, and societal consequences that come with it.”
This year, Citi, BofA and Commerzbank have each pledged to phase out financed emissions by 2050, with BofA applying the pledge to its “financing activities, operations and supply chain” and Commerzbank to its “entire lending and investment portfolio”.
It is unclear whether the syndicate banks will buy up a portion of the debt as part of ‘market stabilisation’ measures, as is common in large deals.
Citi, Bank of America and Commerzbank declined to comment on their role in the transaction, or to confirm whether their Net Zero targets extend to investment banking activities.
Even if the debt remains off the banks’ balance sheets, their participation in the deal could be enough to cause a reputational headache at a time when banks are increasingly coming under scrutiny for underwriting, not just lending and investment activity.
In April, Barclays was expelled from the American Sustainable Business Council over its role as lead underwriter for municipal bonds that financed two prisons owned by CoreCivic, after having pledged to cease financing to private prison companies.
Barclays later abandoned the deal, together with another bookrunner for the transaction.
SUEK’s debut offering comes soon after the International Energy Agency warned that an immediate end to investments in new fossil fuel projects was necessary to avoid the most harmful effects of global warming.
Coal is the most polluting fossil fuel and the single largest source of global temperature rise, according to environmental law firm Client Earth. Coal prices recently hit record highs on the back of soaring demand from China and India.
This week, RI reported that Russia was preparing to launch a green taxonomy, which would help the country’s economy move away from polluting activities.