Chanel’s latest quest to raise capital comes with a timely twist. As the fashion industry scrambles to address looming sustainability concerns of consumers and regulators, alike, a newly-issued 600 million euro ($699 million) bond – which Chanel’s chief financial officer Philippe Blondiaux says is the privately-held French luxury goods company’s first foray into the public market – includes provisions that link the corporate debt to specific carbon reduction targets set out by the brand. Put simply, unlike traditional debt instruments, if the French luxury goods company does not make good on the “green strings” it has attached, it will be penalized when the bond matures.
Specifically speaking, the newly-revealed Chanel bond – which trades on the Luxembourg Stock Exchange – pull in commitments made by the 111-year old brand in furtherance of the climate report that it published in March. In the report, entitled, Chanel Mission 1.5°, Chanel outlines its “commitment to tackle climate change in line with the targets of the 2015 Paris Climate Agreement, namely, “decreasing Chanel’s own (scope 1 and 2) emissions by 50 percent by 2030; decreasing [its] supply chain (scope 3) absolute greenhouse gas emissions by 10 percent by 2030, and shifting to 100 percent renewable electricity in Chanel operations by 2025.”
As for the structure of the bond, it is comprised of two different segments – a five-year tranche that Chanel will have to repay at a heightened 100.5 percent of face value on maturity in July 2026 if “the company is not wholly reliant by then on renewable electricity,” per Bloomberg, and a 10-year tranche, which “will cash out at 100.75 percent” premium in July 2031 if Chanel falls short on its specified greenhouse gas emission targets.
In launching these bonds, Blondiaux revealed that “Chanel hopes to support the development of the sustainable financing market and the wider social and environmental progress that this type of financing can advance. There is a growing recognition among investors that they have a role to play in helping to tackle climate change, and we look forward to engaging with them.”
In a release on Friday, the brand said that it is “the first unrated issuer to place public bonds linked to its sustainability objectives,” and that its Sustainability-Linked Bonds were “well received by the market and were oversubscribed.”
As for what this new debt issuance means for the closely-guarded Chanel, Bloomberg’s Marcus Ashworth wrote on Friday, “Having previously relied on private debt and bank loans, Chanel is coming to the public markets to refinance some of the 600 million pounds ($765 million) of Covid loans it has repaid to the [Bank of England].” With that in mind, “We probably shouldn’t read too much into what the bond debut says about the controlling Wertheimer family’s plans for the company. There has been speculation (denied by the Wertheimers) about an initial public offering or sale. Even if that isn’t the intention, it doesn’t hurt to have a profile in the debt markets.”
Over the past several years, Chanel, which trails just behind Paris-based power brand Louis Vuitton in terms of annual revenues, has been plagued by rumors that it is seeking a buyer, and that LVMH Moët Hennessy Louis Vuitton would be the lucky acquirer. Both parties have dismissed such rumors, with LVMH chairman Bernard Arnault going so far as to call such reports “fake news” at the group’s annual shareholder meeting in April 2018.
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