Richemont says R40bn bond sale a sign of investor confidence that it can weather Covid-19 shock
Johann Rupert’s Richemont, the luxury goods group that owns the Cartier brand, hailed its ability to sell bonds at favourable rates as a sign of confidence among investors in its ability to weather the Covid-19 induced economic stress in its key markets.
The company sold €2bn (R40bn) of bonds maturing in eight to 20 years at coupons of less than 2%. Its €500m of notes maturing in eight years will pay an annual 0.75%. It also sold €850m of 12-year notes at 1.125% as well as a 20-year security at 1.625%.
In contrast, the coupon on SA's R186 bond maturing in 2026 is 10.5%. The company's notes are also relatively attractive for investors in Europe and elsewhere searching for alternatives to government bond yields that have negative yields, meaning investors who hold them to maturity are assured of losing some of their money. Yields on Swiss 10-year bonds were at minus 0.53% on Tuesday.
“The significant interest from investors demonstrates recognition of our strong cash-generation profile and unique business model around Maisons with centuries of heritage, as well as digital native businesses,” Richemont CFO Burkhart Grund said.
Richemont has subsidiaries such as high-end watch and jewellery retailer Cartier and German-based luxury goods maker Mont Blanc. Rupert last week said there would be headwinds in the months ahead and that the company had a secure cash position to ride out the Covid-19 economic shock.
The company's fortunes are directly linked with customers' ability to spend on its luxury — and expensive brands — and it has suffered as the Covid-19 lockdowns halted tourism.
“Whilst Richemont has a robust balance sheet and more than adequate cash resources, we view it prudent to secure additional liquidity to weather potentially tougher times ahead,” Grund said.
The Swiss-based company, which has a market capitalisation of about R531bn, recently reported that the pandemic had pummelled sales in Asia earlier in 2020, but it noted a promising recovery in China as lockdown restrictions ease.
The group said earlier that its 462 boutiques in China had now reopened as the world’s second-largest economy kick-starts activity.
“However, this won't be enough to help the company return back to its growth as overseas spending by Chinese tourists will be non-existent until flights are back in the air and operating at full capacity,” asset manager Vestact said in a note on Tuesday.
The group's sales in the first three months of 2020 declined by 18% largely due to the weaker performance in Asia as business activity slowed with many parts of the region still under lockdown.
On Tuesday Richemont's share price on the JSE fell 0.14% to R101.61. The company's share price has dropped more than 7% so far in 2020.