Export credit agencies (ECAs) in Italy and Austria are backing loans to help German industrial giant Salzgitter AG decarbonise its steel production.

Salzgitter has secured a €500mn senior unsecured financing package comprising a €300mn facility backed by Italian ECA Sace and a €200mn deal guaranteed by OeKB, Austria’s ECA.

Steelmaking produces vast greenhouse gas emissions due to its reliance on coking coal. Efforts to reduce the sector’s impact on the climate have focused on replacing coal with renewable electricity and green hydrogen.

Salzgitter, Germany’s second-largest steel manufacturer, is attempting to substantially reduce the approximately 8mn tonnes of carbon dioxide released by its steelworks each year by developing “virtually climate-neutral” steel-making processes.

The financing deals support the purchase by Salzgitter of plant equipment from Italian suppliers Tenova and Danieli and an electric arc furnace exported from Primetals in Austria.

BNP Paribas structured the Sace facility and acts as coordinating mandated lead arranger (MLA), lender, ECA agent and bookrunner. UniCredit is an MLA and lender.

The OekB-backed transaction was structured by Commerzbank, which acts as coordinating MLA, lender, agent and ECA agent, with BNP Paribas also an MLA and lender.

Deutsche Bank coordinated the green loan classification across both facilities and is sustainability coordinator, MLA and lender.

The Sace loan also benefits from a reduced interest rate provided by Simest, an Italian development finance institution.

The loans are aligned with the Loan Market Association’s green loan principles and are part of a €2.3bn investment by Salzgitter in its low-carbon steel transformation.

Sace and Simest were advised by Norton Rose Fulbright, and Linklaters was counsel for Salzgitter.

Earlier this year Swedish company H2 Green Steel announced a €4.2bn package to finance the completion of a giant green steel plant in Sweden, backed by Germany’s export credit agency and a pool of commercial lenders.