(Bloomberg) — Sappi Ltd., the world’s largest producer of glossy paper, plans to save $30 million in annual interest payments as it prepares to sell bonds to refinance as much as $500 million of debt.
The South African company will target European markets to refinance bonds due in 2018 and 2019 “fairly soon,” Chief Executive Officer Steve Binnie said in an interview at the company’s headquarters in Johannesburg on Friday. Sappi will aim to cut 3 percentage points from current interest rates of about 8 percent, he said.
“The markets are really hot at the moment,” Binnie said. Europe is “the best place with all the liquidity that’s there.”
The European Central Bank’s 1.1 trillion-euro ($1.25 trillion) stimulus plan is proving a boon to Europe’s junk-debt market, pushing borrowing costs for the riskiest companies toward a record low. Sappi, whose paper outside South Africa is rated junk, or below investment grade, is reducing debt as it cuts costs and spends less on new plants.
Sappi’s euro-denominated bonds due in April 2018 traded at a rate of 5.317 percent in Johannesburg on Friday compared with the coupon price of 6.625 percent. Its dollarbonds due in June 2019 were issued at a price of 8.375 percent. The shares gained 4 percent on Friday to 50.08 rand, valuing the company at 26 billion rand ($2.2 billion).
Reducing Debt
Sappi will cut debt by $600 million this year, paying $100 million from cash reserves, Binnie said. Net debt will be “substantially down” from the $1.95 billion at the end of the last fiscal year through September, he said.
“As our debt position continues to improve, our interest bill will come down progressively,” he said.
The paper maker said on Feb. 11 that first-quarter net income gained 33 percent to $24 million as the company benefited from rising paper prices in Europe. Net debt rose to $2.04 billion in the three months through December as that quarter is traditionally the slowest in terms of sales, according to the company.
Sappi has operations in Europe, North America and South Africa and is increasing its focus on dissolving wood pulp, used to make luxury clothing, sportswear and pharmaceuticals, as the product is more profitable than paper.
