Sappi expects new bonds to reduce its interest bill

Sappi, the world’s largest maker of dissolving wood pulp, says it will save about R18m a year in finance costs after refinancing debts at better rates.

Sappi said on Wednesday it raised €450m worth of new bonds due 2026. The bonds had a coupon of 3.125% a year.

The proceeds would be used to redeem €450m worth of bonds due 2022. Those bonds had a coupon rate of 3.375%, implying annual interest savings of about €1.125m.

Sappi’s net finance costs in the quarter ended December 2018 were $17m.

The bond issuance was “substantially oversubscribed”, a Sappi spokesperson said.

Sappi CEO Steve Binnie said the refinancing “meets the group’s objective of extending the debt-maturity profile and further reducing finance charges”.

It would allow Sappi “more financial flexibility to implement future strategic initiatives”.

The group’s shares were 0.5% up at R73 in early trade.

In early February, the pulp and paper group warned of lower profits in Europe and North America due to subdued demand.

Sappi said at the time that it expected earnings before interest, tax, depreciation and amortisation (ebitda) in the second quarter of its 2019 financial year to be slightly lower than the same period in 2018 due to weak graphic-paper markets and high paper-pulp prices in Europe and North America. 

However, ebitda for the full year was expected to be above that of the prior year.

In the three months ended December 2018, Sappi’s net profit grew 29% to $81m, from $63m in the matching period in 2017.

The group attributed the increase to strong demand for its dissolving wood pulp from Chinese clothes makers. Dissolving wood pulp is used to produce viscose fibre for clothing and textiles.

hedleyn@businesslive.co.za