The UAE’s national airlines and Abu Dhabi-owned Eithad Airways has issued a US dollar-denominated Sukuk facility worth US$600 million, touted as the world’s first ‘transition’ Sukuk and also the first sustainability-linked financing in the global aviation industry, structured under a transition finance framework.
Proceeds from the issuance will be used by Etihad to raise capital focused on gradually switching to greener, more environmentally sustainable operations. The carrier plans to use more fuel-efficient planes and eliminate single-use plastic, aiming to cut its 2019 carbon emissions level by 50% by 2035 and achieve net zero carbon emissions by 2050.
“This follows the first aviation financing linked to the United Nations Sustainable Development Goals raised in December 2019, further confirming Etihad’s role as an industry leader in sustainable finance,” the company said.
Transition bonds or Sukuk are typically targeted at industries with high greenhouse gas emissions, including aviation, energy, shipping and steel and cement manufacturing. “Sustainability and responsible climate action are the most significant challenges facing the aviation industry,” Adam Boukadida, CFO of Etihad Aviation Group, said, adding: “By issuing a sustainability-linked Sukuk, Etihad is voluntarily adding to its existing commitments under CORSIA, and also committing to reduce carbon emissions intensity by over 20% from the 2017 baseline.”
Etihad will be conducting research and development into sustainable aviation fuel, and has committed to paying a penalty in the form of carbon offsets should it fail to meet its short-term target of reducing the carbon intensity of its passenger fleet.
HSBC, which acted as the joint global coordinator with Standard Chartered, was also the joint sustainability structuring agent on the deal, which comes only weeks after the bank had announced an ambitious strategy to help drive the transition to a net zero economy.
“Many industries, including airlines, need to undertake complex and gradual transformations to reduce their carbon emissions, and the financial sector has a responsibility to help them,” Ali Taufeeq, the director of HSBC’s Middle East Debt Capital Markets division, said.
Etihad Airways last issued Sukuk in 2016 — a US$1.5 billion facility maturing on the 30th November 2021. The successful issuance of the transition Sukuk has secured US$300 million in early repayment for the company’s outstanding facility.
|Etihad Airways’s Sukuk |
29th October 2020
|Mode of issue||Private|
|Joint global coordinators/joint sustainability structuring agents||HSBC, Standard Chartered|
|Joint lead managers and bookrunners||Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, Standard Chartered|
|Joint lead manager||Abu Dhabi Commercial Bank|
|Financial advisor||Mashreq Bank|