Co-founder of Affari Miei Independent Financial Advisory Company
November 24, 2023
Alerion Clean Poweran electrical industrial group listed on the Milan Stock Exchange and specialized in the production of electricity from renewable sources, announced the issuance of a Green Bond expiring a December 2029. This initiative represents an interesting opportunity for investors attentive to sustainability and the production of “green” energy: is it really convenient to invest?
What are the risks? And the opportunities?
In this article we will analyze the Green Bond di Alerion Clean Power and we will provide our overall views on the new instrument being issued.
This article talks about:
Issue Details: Characteristics of the security
Schematically we report the characteristics of the bond:
Issuer: Alerion Clean Power SPA;
Issue Amount: Between €100,000,000 and €170,000,000;
Expiration: 6 years (December 2029);
Coupon: Fixed rate of no less than 6.50% per year, paid semi-annually;
Issue Price: 100.00 (equal to the nominal value);
Minimum cut: 1.000 euro;
ISIN: XS2717294487;
Reimbursement: At par at maturity, with the possibility of early repayment under the following conditions:
– from 12 December 2026 (inclusive) to 11 December 2027 (inclusive): nominal value plus 50% of the coupon;
– from 12 December 2027 (inclusive) to 11 December 2028 (inclusive): nominal value plus 25% of the coupon;
– from 12 December 2028 (inclusive): nominal value without redemption premium.
In my opinion it is important to understand an important step: this bond is technically callable. It means that the issuer, before maturity, can repay the security early with a lower yield than that of non-exercise.
This is a fairly frequent feature in the issues we have been witnessing in recent months: bonds at attractive rates are placed on the market but companies reserve the right to repay them early.
This happens because the companies themselves, aware of the fact that interest rates are destined to fall within a few years, plan to repay the loans first by taking out others with market rates which, in the future, will be lower for them.
Placement Period
The offer will be available from 30 November 2023 to 6 December 2023 with the possibility of pre-order from 23 November 2023 on enabled platforms.
6.5% Yield: A Huge Opportunity?
This Green Bond offers a minimum interest rate of 6.50% per annum, an attractive value in the current bond market environment. The semi-annual coupon provides a regular income stream which is considered a positive aspect for investors looking for constant income.
Furthermore, Alerion Clean Power’s focus on the production of renewable energy aligns with the growing interest in sustainable and responsible investing. This aspect could attract many people who not only seek financial returns but also a positive environmental impact.
This is a security designed especially for the retail market given that the minimum investment is just 1000 euros.
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Risks
As with any investment, it is essential to consider the associated risks and not just stop at the return.
Alerion Clean Power’s Green Bond is unratedi.e. not rated, which implies greater difficulty in assessing the credit risk of the issuer.
Furthermore we are faced with a bond corporate and, on average, bonds of this type are riskier. This is why Alerion Clean Power offers 6.5% and not 3%, as usual there are no free meals.
Is it worth investing? The opinions of Affari Miei
We are aware of going against the current because 2023 is thebond year and everyone wants to invest in it.
However, we have been an independent voice for almost 10 years and we are aware that the hungry crowd that wants to invest in a certain market or in certain instruments does not always determine their validity.
To understand if a financial instrument is convenient or not we must not only look at the performance but we must compare it to the alternatives we have available: in this case our ideal benchmark is not given by the BTP which pay much less (because they are considered less risky) but from other corporate bonds. We must not make the mistake of thinking that any bond is safe and that a yield of 6.5%, decidedly higher than BTPs, certifies its convenience everything short of the product.
To give an educational example, they can be purchased on the secondary market bonds of Apple which yield 5% on the same maturity: Apple capitalizes almost 3 trillion dollars while Alerion capitalizes 1.31 billion, in theory the American giant is considered safer and more reliable and pays 5%. Is it worth the risk for an extra 1.5% return? If you wanted to do an objective analysis, you should ask yourself this question and try to give yourself an answer.
Subsequently, you should ask yourself another question: does it make sense to invest in individual bonds by concentrating the risk so much? You will probably answer that €1000 is not much all things considered but if you wanted to invest seriously and not by chance you should have a bond portfolio of dozens if not hundreds of bonds divided by category, maturity and geography. For this reason, there are tools such as funds or ETFs that allow you to significantly reduce this risk with greater diversification.
You might be wondering what mine are opinions and I couldn’t help but precede them with these premises: I have nothing against these bonds but I won’t buy them because in my investment strategy there are diversified instruments which, without me even being informed about each single issue, purchase bonds of this type with the correct basic asset allocation set by me.
I therefore do not consider these bonds to be junk or even gold but, trivially, I do not consider it particularly advantageous for a private individual to purchase too many individual bonds because it can also achieve the same result through a very normal ETF obtaining, among other things, greater fiscal efficiency with the deferral of tax payments with accumulation instruments.
Additional helpful resources
I hope this guide helps you, if you are looking for more information or want to learn more here are a series of introductory resources:
Have a good continuation and see you soon!
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