Tuesday 17 September 2019

Smurfit Kappa's €750m bond to cut interest costs

smurfit kappa
smurfit kappa
John Mulligan

John Mulligan

PACKAGING giant Smurfit Kappa is set to trim its borrowing costs after selling €750m worth of bonds via a private placement with investors.

It is the latest move by the Ftse-100 firm to reduce its interest expenses by taking advantage of its strong financial position and turmoil on the global government and corporate bond market that has seen yields crimped.

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There has been a big fall in high-grade corporate and government bond yields, while there's also been an increase in negative-yielding debt.

Investors believe that the global economy might be on the brink of a recession.

Smurfit Kappa will use the proceeds from the new bond issue to redeem €250m in notes that fall due in 2020, and €500m that mature in 2021.

The senior notes to be sold by Smurfit Kappa's subsidiary, Smurfit Kappa Treasury, will mature in 2027. It had initially intended to sell just €500m of the unsecured notes, but there was significant investor demand for the issue.

Earlier this year, Smurfit Kappa undertook a €400m bond sale for paper that matures in 2026. That was used to refinance some of its existing facilities. The new €400m issue carried a coupon, or interest rate, of 2.756pc.

The pool of negative-yielding bonds in the euro area expanded further in August, with almost half of euro-denominated investment-grade corporate debt on the Tradeweb platform now carrying negative yields, Tradeweb said yesterday.

Growing recession risks, a bitter China-US trade war and growing expectations for central bank rate cuts have pushed bond yields across the world lower this year, deepening the pool of assets with sub-zero yields.

Of the roughly €3.4trn of euro investment grade corporate bonds traded on Tradeweb, 49.51pc or €1.68trn worth, have a negative yield, data as of the end of August showed. This stood at around 12pc in January.

The August number was the highest share on record, according to data compiled from Tradeweb, one of the largest electronic bond trading platforms, that goes back to mid-2016.

"It is perhaps a worry that the pool of negative-yielding corporate bonds has risen so quickly and in a short period of time," said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Investors say the growth of negative-yielding bonds reflects deep unease about the current economic outlook and central banks' ability to boost inflation. (Additional reporting: Reuters)

Irish Independent

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