---
title: "Focus on Credit: Hybrid bonds - Funding joker for the green transformation"
url: https://www.helaba.com/en/focus-credit-hybrid-bonds-funding-joker-green-transformation
type: dd_research
language: en
updated: 2026-09-28
keywords: Credit, Credit Special
---

# Focus on Credit: Hybrid bonds - Funding joker for the green transformation

Focus on: Credit 24 July 2024 © Helaba | Research & Advisory | | 24 July 2024 1 of 5 Research & Advisory Hybrid bonds: Funding joker for the green transformation The green transformation of the economy means that many companies will have to make substantial investments. Particularly in capital-intensive sectors such as telecommunications and utilities, the question is how to finance these expenditures in the future without overstretching debt ratios. In our view, issuing hybrid capital is an effective solution. Especially as the instrument can be excellently structured as a dedicated green bond. The timing also seems favourable at present, given the significant decline in funding costs and the improved pricing compared to alternative forms of funding. In addition to digitalisation and measures to diversify supply chains, the transformation of the economy towards climate-friendly production will ensure that many companies' capital expenditure will continue to grow in the com- ing years. In particular, the network-based infrastructure sectors of telecommunications and utilities are groaning under the financial burden of upgrading telephone networks from copper to fibre and investing in alternative en- ergy generation. On average, these sectors have to spend well over 10% of their turnover on capital expenditure (CapEx), and the trend is rising. For the utilities and telecoms companies in the STOXX 600 alone, analysts sur- veyed by Bloomberg forecast a huge capital expenditure budget of just under EUR 160 billion per year over the next few years. Given the already high debt ratios of these companies, the question is how this spending can be managed without putting too much pressure on their credit profiles. Ulrich Kirschner, CFA Senior Analyst Phone +49 69/91 32-28 39 Utilities and telecommunications: Large funding requirements meet already elevated levarage ratios Stoxx 600 Sectors: CapEx / revenue (%) and net debt / EBITDA (x-times)\* \*as of 07.05.2024 Sources: Bloomberg, Helaba Research & Advisory Automotive Basic Resources Chemicals Construction & Mat Consumer Prds & Ser Energy Food & Bev Health Care Industrial Gds & Ser. Media Personal Care Retail Technology Telco 14,8% Travel & L. Utilities 16,7% 0,0% 5,0% 10,0% 15,0% 20,0% 0,0 0,5 1,0 1,5 2,0 2,5 3,0 CapEx / revenue 2026e Net debt / EBITDA 2023- Sector Median Focus on: Hybrid bonds © Helaba | Research & Advisory | 24 July 2024 2 of 5 Hybrid bonds strengthen equity without diluting shareholders One way to strengthen the balance sheet is to inject equity through a traditional capital increase. However, this route is often blocked because owners are often unwilling or unable to provide fresh funds (partly due to tight public budgets) and would therefore have to accept a dilution of their shareholding. An alternative that avoids these side effects can be the placement of a hybrid bond. If it meets certain criteria, it can be classified as equity on the balance sheet under IFRS accounting standards. In particular, it must be subordinated to all other financial liabilities, coupon payments can be suspended or deferred, and the bond must not have a fixed maturity. The rat- ing agencies also require a very long maturity or the deferral of coupon payments in order to classify the securi- ties, at least in part, as equity. In this case, the equity credit is usually 50% (see Credit Special - Hybrid Bonds: Shoring up defences in good time, from 11 November 2020, p. 2). Given its benefits, it is not surprising that the instru- ment has been very popular, particularly in difficult times such as the coronavirus years, helping to stabi- lise the credit profiles of some companies when earn- ings and credit metrics came under pressure. How- ever, the market segment is also currently experienc- ing a revival. Although its 5% share of the overall pri- mary EUR corporate bond market can still be consid- ered moderate due to its strong dynamics, in absolute terms more hybrid capital was issued in the first half of the year (EUR 13bn) than in the whole of 2022 and al- most as much as in 2023. Green becomes the dominant issuance format in the hybrid space Given the underlying financing purpose, it makes perfect sense to add a sustainability component to a hybrid bond. The market share of dedicated green financing in the hybrid segment has been growing steadily in recent years, reaching a new record high of 73% of the total placement volume in the first half of 2024. Given the still very high investment needs in the infrastructure-related sector, we expect issues with an ESG component to con- tinue to play a key role. Demand for hybrid instruments significantly higher than last year EUR hybrid bonds: issuance volume in EUR billion and share of the primary market for EUR corporate bonds in %\* \*as of 15.07.2024 Sources: Bloomberg, Helaba Research & Advisory 3% 3% 1% 8% 9% 8% 2% 3% 5% 5% 8% 8% 5% 4% 5% 0 5 10 15 20 25 30 35 40 45 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Share of total primary market for EUR corporate bonds Q4 Q3 Q2 Q1 Telco & Utilities currently most important sectors EUR hybrid bonds, placement volume in EUR billion\* \*as of 15.07.2024 Sources: Bloomberg, Helaba Research & Advisory 0 5 10 15 20 25 30 35 40 45 Others Health Care Automotive Oil&Gas Telco Utilites Focus on: Hybrid bonds © Helaba | Research & Advisory | 24 July 2024 3 of 5 Significantly lower funding costs open favourable issuance window The pick-up in issuance this year was not least due to favourable developments in the funding costs of hy- brid bonds. In the second half of the year, risk premi- ums on subordinated corporate bonds began to fall noticeably. The asset swap spread of the iBoxx € Non- Financials Subordiated is currently only around 40 ba- sis points away from its ten-year low. In contrast, the spreads of unsecured senior bonds have essentially moved sideways. The relative spread ratio iBoxx € Non-Financials Subordinated to Senior is currently only 2.5x, a level last seen for a short period four years ago. Overall, the funding costs of a hybrid placement are likely to be higher than what corporates were able to achieve before mid-2022 due to the rise in base rates. However, they are significantly more favourable than at any time in the last two years. As a result, we believe that the timing for a hybrid bond issue is currently extremely favourable. The high level of oversubscrip- tion in many of the recent transactions also shows that this financing instrument is in high demand among inves- tors. Given the uncertain outcome of the current geopolitical crises, it may therefore make sense for some treasur- ies to implement corresponding refinancing plans as soon as possible. Green bonds on the rise in the hybrid segment ... ... contrary to the general market trend Placement volume of hybrid bonds with an ESG component in EUR bn Placement volume of EUR corporate bonds in EUR billion \*as of 15.07.2024 Sources: Bloomberg, Helaba Research & Advisory \*as of 15.07.2024 Sources: Bloomberg, Helaba Research & Advisory 0% 22% 11% 20% 11% 34% 30% 41% 73% 0 2 4 6 8 10 12 2016 2017 2018 2019 2020 2021 2022 2023 2024 Green other ESG formats Volume share in % 3% 5% 4% 8% 7% 25% 31% 26% 21% 0 20 40 60 80 100 2016 2017 2018 2019 2020 2021 2022 2023 2024 Volume share in % Green Sustainability-linked and others Subordinated securities with tighter spreads iBoxx indices: Asset swap spread in bp\* \*as of 15.07.2024 Sources: LSEG, Helaba Research & Advisory 0,0 1,0 2,0 3,0 4,0 5,0 0 100 200 300 400 500 01.22 03.22 05.22 07.22 09.22 11.22 01.23 03.23 05.23 07.23 09.23 11.23 01.24 03.24 05.24 Spread factor - Sub/Senior (rhs) iBoxx € Non-Fin Sub iBoxx € Non-Fin Senior Focus on: Hybrid bonds © Helaba | Research & Advisory | 24 July 2024 4 of 5 Yields at 2-year low Ø rating in the usual range iBoxx indices: Yield in %\* Volume-weighted average rating of the hybrid bonds \* \*as of 15.07.2024 Sources: LSEG, Helaba Research & Advisory \*If rating available. As of: 15.07.2024 Sources: Bloomberg Helaba Research & Advisory 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 01.22 03.22 05.22 07.22 09.22 11.22 01.23 03.23 05.23 07.23 09.23 11.23 01.24 03.24 05.24 07.24 iBoxx € Non-Fin Sub iBoxx € Non-Fin Senior 3 4 5 6 2019 2020 2021 2022 2023 2024 ø-Rating BBB BBB- BB+ BB Selected hybrid placements since the beginning of 2023\* \*as of: 22.07.2024 Sources: Bloomberg, Helaba Research & Advisory Date Issuer Sector Coupon first call date Issuance volume in EUR million Composite Rating Green Current Z-Spread 08.07.2024 EESTI ENERGIA AS Utilities 7,88 15.07.2029 400 B+ yes 484 20.06.2024 ALLIANDER NV Utilities 4,50 27.03.2032 500 BBB+ yes 171 11.06.2024 KONINKLIJKE KPN NV Telecommunications 4,88 18.06.2029 500 BB+ yes 191 05.06.2024 ENGIE SA Utilities 5,13 14.03.2033 1.035 BBB- yes 246 05.06.2024 ENGIE SA Utilities 4,75 14.03.2030 800 BBB- yes 208 04.06.2024 A2A SPA Utilities 5,00 11.06.2029 750 BB+ yes 245 23.05.2024 ALSTOM SA Industrial Gds & Ser 5,87 29.05.2029 750 BB no 238 21.05.2024 ENERGIAS DE PORTUGAL SA Utilities 4,75 28.02.2030 750 BB+ yes 209 16.05.2024 TOPSOE AS Chemicals 6,75 23.05.2029 200 NA yes 347 04.04.2024 TERNA RETE ELETTRICA Utilities 4,75 11.01.2030 850 BB+ yes 224 27.03.2024 ORANGE SA Telecommunications 4,50 15.12.2030 700 BBB- no 181 25.03.2024 BRITISH TELECOMMUNICATIO Telecommunications 5,13 03.07.2029 750 BB+ no 212 14.03.2024 ARKEMA Chemicals 4,80 25.03.2029 400 BBB- no 202 14.03.2024 TENNET HOLDING BV Utilities 4,88 21.12.2031 550 BB+ yes 216 14.03.2024 TENNET HOLDING BV Utilities 4,63 21.03.2029 550 BB+ yes 199 06.03.2024 TELEFONICA EUROPE BV Telecommunications 5,75 15.01.2032 1.100 BB yes 264 05.03.2024 ORSTED A/S Utilities 5,13 14.09.2029 750 BB+ yes 213 20.02.2024 ENEL SPA Utilities 4,75 28.02.2029 900 BB+ no 210 29.01.2024 PORR AG Industrial Gds & Ser 9,50 06.11.2028 135 NA no 453 16.01.2024 ENBW ENERGIE BADEN - WU Utilities 5,25 23.10.2029 500 BBB- yes 191 09.01.2024 IBERDROLA FINANZAS SAU Utilities 4,87 16.01.2031 700 BBB- yes 184 13.11.2023 VEOLIA ENVIRONNEMENT SA Utilities 5,99 22.11.2028 600 BB+ no 218 08.11.2023 VAR ENERGI ASA Oil & Gas 7,86 15.11.2028 750 BB no 281 02.11.2023 APA INFRASTRUCTURE LTD Utilities 7,13 09.11.2028 500 BB+ no 233 04.10.2023 ACCOR SA Travel & Leisure 7,25 11.01.2029 500 BB no 222 20.09.2023 BAYER AG Health Care 7,00 25.09.2031 1.000 BB+ no 367 20.09.2023 BAYER AG Health Care 6,63 25.09.2028 750 BB+ no 345 30.08.2023 TELEFONICA EUROPE BV Telecommunications 6,75 07.06.2031 750 BB yes 261 29.08.2023 VOLKSWAGEN INTL FIN NV Automobiles 7,88 06.09.2032 750 BBB- yes 309 29.08.2023 VOLKSWAGEN INTL FIN NV Automobiles 7,50 06.09.2028 1.000 BBB- yes 241 24.05.2023 VODAFONE GROUP PLC Telecommunications 6,50 30.05.2029 750 BB+ no 191 05.04.2023 ORANGE SA Telecommunications 5,38 18.01.2030 1.000 BBB- no 183 09.03.2023 SANOMA OYJ Media 8,00 16.03.2026 150 NA no 318 08.03.2023 ELIA GROUP SA/NV Utilities 5,85 15.03.2028 500 BB+ no 206 16.02.2023 PURMO GROUP OYJ Industrial Gds & Ser 9,50 23.02.2026 60 NA yes 621 25.01.2023 TELEFONICA EUROPE BV Telecommunications 6,14 03.02.2030 1.000 BB yes 238 24.01.2023 RED ELECTRICA CORP Utilities 4,63 07.05.2028 500 BBB yes 147 19.01.2023 EUROPEAN ENERGY AS Utilities 10,75 26.01.2027 115 NA yes - 18.01.2023 IBERDROLA FINANZAS SAU Utilities 4,88 25.04.2028 1.000 BBB- yes 164 17.01.2023 EUROFINS SCIENTIFIC SE Industrial Gds & Ser 6,75 14.04.2028 600 BB no 332 16.01.2023 ENERGIAS DE PORTUGAL SA Utilities 5,94 23.01.2028 1.000 BB+ yes 209 09.01.2023 ENEL SPA Utilities 6,63 16.04.2031 750 BB+ no 244 09.01.2023 ENEL SPA Utilities 6,38 16.04.2028 1.000 BB+ no 197 Focus on: Hybrid bonds © Helaba | Research & Advisory | 24 July 2024 5 of 5 Publisher and editor Helaba Research & Advisory Editor: Stefan Rausch Publisher: Dr. Gertrud R. Traud Chief Economist/ Head of Research & Advisory Neue Mainzer Str. 52-58 60311 Frankfurt am Main Phone +49 69 / 91 32 - 2024 Internet: www.helaba.com Disclaimer This publication was very carefully researched and prepared. However, it contains analyses and fore- casts regarding cur-rent and future market condi- tions that are for informational purposes only. The data are based on sources that we consider reliable, though we cannot assume any responsibility for the sources being accurate, complete, and up to date. All statements in this publication are for informa- tional purposes. They must not be taken as an offer or recommendation for investment decisions. Sign up for our newsletter here: https://news.helaba.de/research/

Green transformation requires high investments, especially in the utilities and telecommunications sectors. Hybrid bonds with many advantages. Currently favorable issuance window.