Social bond issuance could approach $100bn in 2020, says new report

BY Fraser Tennant

In response to economic shocks caused by the coronavirus (COVID-19) pandemic, governments, supranationals and corporations have accelerated the issuance of social bonds, according to a report published this week by S&P Global Ratings.  

Issuance of the bonds – defined as use-of-proceeds bonds that raise funds for new and existing projects that address or mitigate a specific social justice issue such as employment, education, housing and healthcare – has risen fourfold so far this year from the 2019 level to $71.9bn.

Furthermore, S&P projects social bond issuance could approach $100bn this year – potentially becoming the fastest-growing segment of the sustainable debt market. Additionally, S&P expects to see an increase in investor interest in social bonds growing across both the public and private sector.

“Economic shocks from the COVID-19 pandemic have widened existing inequities around the world,” said Lori Shapiro, credit ratings analyst at S&P Global Ratings and primary author of the report. “Poorer people, minorities, and women are suffering disproportionately from growing health, housing, income, and education gaps under measures to contain COVID-19 that could set them back for years to come. This has led to calls for greater social justice in dealing with the pandemic.”

Historically, interest in social bonds from investors, governments and companies has been limited, with social bond issuance comprising only 5 percent of all 2019 sustainable bond issuance. However, since the outbreak of COVID-19, structural inequalities have been placed under the spotlight and calls for social justice have intensified.

This increase in demand is likely to be met with greater supply from a wider range of issuers to fund a variety of projects, including access to safe and affordable housing, improvements to public health infrastructure, and employment or income generation.

Ms Shapiro concluded: “Sustainable finance debt, and particularly social bonds, will continue to serve as a tool in the economic fight against COVID-19 and the social inequalities and justice issues that have proliferated as a result.”

News: Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes

Traton and Navistar agree $3.7bn deal

BY Richard Summerfield

Traton SE, a subsidiary of Volkswagen Group, has agreed to acquire the remaining stake in Navistar International Corp it does not already own, for $44.50 per share. The deal values the company at around $3.7bn.

The deal, which is expected to close in mid-2021, has been approved by Traton’s executive board and supervisory board. The deal has also been approved by Volkswagen’s board.

Traton, which was established in 2018 after the Volkswagen Group separated its truck and passenger car operations, already owned a 16.8 percent stake in Navistar. The Volkswagen group will provide Traton with a loan of $3.9bn, repayable over 12-18 months, to fund the deal.

“Today’s announcement accelerates our Global Champion Strategy by expanding our reach across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products, technologies and services to our customers,” said Matthias Gründler, chief executive of Traton. “Together, we will have an enhanced ability to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving for customers around the world.”

He added: “Navistar has been a valuable partner, and we are confident this combination will deliver compelling strategic and financial benefits, create enhanced opportunities for both Navistar and TRATON, and best position us to drive sustained value in the evolving global commercial vehicle industry.”

“This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders,” said Persio Lisboa, president and chief executive of Navistar. “We look forward to continuing to work with the TRATON team to create opportunities for our employees and provide an outstanding experience for our customers and dealers through best-in-class products, services and technologies.”

The agreement brings to an end a period of uncertainty regarding the future of Navistar. In September, Traton offered $43 per share, but Navistar International’s board of directors rejected the bid on grounds that it significantly undervalued the company. Navistar has since accepted Traton’s sweetened offer, and the company’s largest shareholders, Carl Icahn and MHR Fund Management, have also pledged their support for the deal.

News: Volkswagen truck unit Traton finalises $3.7 billion Navistar acquisition deal

Ant Group’s record IPO suspended

BY Richard Summerfield

The $37bn initial public offering (IPO) of Ant Group was suspended at the eleventh hour on Tuesday in a move which dealt a significant blow to the financial technology firm founded by billionaire Jack Ma.

The company’s listings in Shanghai and Hong Kong were suspended by Chinese authorities citing ‘major issues’ with the filings. The Shanghai Stock Exchange said in a statement that Mr Ma had been called in for “supervisory interviews”, and that a change to the regulatory environment meant Ant no longer met “listing conditions or information disclosure requirements”.

The Hong Kong exchange then reported that Ant had decided to suspend its planned listing. Ant was due to sell about 11 percent of its shares across the two stock exchanges.

That the IPO was called off so late in the process is remarkable given the potential size of the filing. Ant would have recorded a possible market valuation of more than $300bn at its IPO price, placing it among the most valuable companies in the world.

Ant was spun out of Alibaba in 2011, seven years after its parent company was founded. Alibaba acquired 33 percent of Ant’s value in 2018 ahead of its planned IPO. At the time, Ant was valued at around $60bn.

Since the company was spun out, it has enjoyed a meteoric rise. Ant runs Alipay, the leading online payment system in China, which has eclipsed cash, cheques and credit cards. Alipay has over 1 billion annual active users and over 80 million active merchants on the platform.

Alibaba, which had previously broken the record for biggest stock market debut in 2014, saw its share price fall 9.6 percent in Hong Kong trading on Wednesday, following an 8.1 percent fall in New York on Tuesday after the suspension was announced.

News: China slams the brakes on Ant Group’s $37 billion listing

Pacific Drilling opts for Chapter 11

BY Fraser Tennant

Due to significant disruption in the offshore drilling market caused by the coronavirus (COVID-19) pandemic, offshore ultra-deepwater drilling company Pacific Drilling has filed for Chapter 11 bankruptcy protection.

This is the second time the company has filed for Chapter 11 in less than three years, having previously emerged from bankruptcy in late 2018.

Alongside the filing, the Luxembourg-based Pacific Drilling and certain of its domestic and international subsidiaries have entered into a restructuring support agreement (RSA) with an ad hoc group of the largest holders of its outstanding bond debt.

The RSA is intended to eliminate the company’s approximately $1.1bn in principal amount of outstanding bond debt through the cancellation and exchange of debt for new equity. Pacific Drilling expects to emerge from Chapter 11 by the end of the year with access to new capital in the form of an $80m exit facility and with approximately $100m of cash and cash equivalents on the balance sheet.

“After spending months evaluating options for addressing our long term financial needs in light of challenging market and operational conditions, we are pleased to reach agreement that paves the way for an expeditious Chapter 11 restructuring process,” said Bernie Wolford, chief executive of Pacific Drilling.

He continued: “This restructuring is intended to enhance our financial flexibility by eliminating our entire prepetition debt and cash interest burden. We expect to emerge from this process in a stronger position to compete in today’s challenging, lower-commodity-price environment.”

Since the beginning of 2020, the global health crisis caused by COVID-19 and the resulting oil supply and demand imbalance have caused significant disruption in world economies and markets, including a substantial decline in the price of oil. The impact of these market conditions on Pacific Drilling’s business has been direct and significantly negative, rendering its current capital structure unsustainable over the long term.

However, with approximately $120m of cash and cash equivalents, and seven of the most advanced high-specification drillships in the world, Pacific Drilling intends to continue its worldwide operations as usual, deliver services for existing and prospective clients and, subject to court approval, pay all obligations incurred during the Chapter 11 case.

Mr Wolford concluded: “I appreciate the ongoing support of our employees, clients and vendors as we complete this accelerated restructuring process. We remain committed to delivering the safest, most efficient and reliable deepwater drilling services in the industry.”

News: Pacific Drilling files for Chapter 11 to eliminate $1.1 billion of debt

Going private: KAZ Minerals acquired by Nova Resources in £3bn deal

BY Fraser Tennant

In a £3bn deal designed to take it private once again, copper miner KAZ Minerals has been acquired by Nova Resources, a company owned by a consortium comprised of KAZ chairman Oleg Novachuk and Kazakh billionaire Vladimir Kim.

An all-cash-deal, under the terms of the acquisition, Nova Resources will pay the shareholders of London-listed KAZ Minerals 640 pence per share. It is It is intended that the acquisition will be implemented by way of a court-sanctioned scheme of arrangement.

A high-growth copper company focused on large scale, low cost open pit mining in the Commonwealth of Independent States (CIS) region, KAZ Minerals has a track record for the successful delivery of greenfield mining projects. The company employs around 15,000 people, principally in Kazakhstan.

"We are pleased to announce this recommended cash offer for KAZ Minerals,” said Oleg Novachuk, chairman of Nova Resources. “Mr Kim and I believe that KAZ Minerals has made notable progress as a public company since listing on the London Stock Exchange in 2005. However, driven by the current market uncertainty and the corporate circumstances of sequential development projects, we believe that KAZ Minerals' long term interests would be best served as a private company.”

Mr Novachuk is confident that the execution of a higher risk, capital intensive strategy remains the optimal long-term path for KAZ Minerals but recognises that the company’s risk appetite may be misaligned with the preference of many investors in the mining sector.

"Following extensive negotiations, the independent committee of KAZ Minerals intends to unanimously recommend the acquisition to its shareholders as representing an opportunity to realise their investment at a premium in cash in the near term,” said Michael Lynch-Bell, senior independent director and chair of the independent committee at KAZ Minerals. “We believe the offer provides a fair value for KAZ Minerals.”

The acquisition is expected  to be completed in the first half of 2021, subject to the approval of KAZ Minerals’ shareholders, receipt of the relevant antitrust clearances, regulatory approvals and the sanction of the scheme of arrangement by the court.

Mr Novachuk concluded: “In taking this important step, we wanted to ensure that KAZ Minerals’ shareholders were provided with the opportunity to crystallise the value of their investment at a premium valuation. We are confident that this acquisition will deliver an attractive return.”

News: KAZ bosses sign 3 bln pound deal to take miner private again