RMB supports Sappi’s growth with a bespoke convertible bond

The challenge

Sappi is a leading global provider of materials made from wood fibre-based renewable resources. Many of Sappi’s operations are partially energy self-sufficient, with sustainability at the core of the company’s business. The unprecedented events of 2020 heavily impacted Sappi’s earnings. While the company proactively attempted to raise new funding to settle existing debt maturities (due in April and May 2020), decreased risk appetite in the capital markets as a result of the pandemic and increasing volatility had greatly reduced the market appetite for corporate credit. The lack of liquidity also caused credit spreads to increase significantly. Adding to Sappi’s challenge was a commitment undertaken to expand its Saiccor Mill at Umkomaas – a project that was approximately 70% complete at the start of the pandemic.

The financing solution

RMB worked with Sappi to implement a bank bridge loan with existing relationship banks and a private placement bond to refinance the debt maturities. The company also increased its revolving credit facilities to provide liquidity for working capital. Sappi had planned to use its own cash resources to finance the remaining R1.8bn capex for the Saiccor project, however during the uncertain times of the pandemic, it was deemed prudent to protect liquidity as much as possible.

Various funding sources were considered, but with other funding options stretched, an alternative solution was needed. RMB provided this solution in the form of a convertible bond – a bespoke instrument which included equity optionality with the potential to further improve Sappi’s liquidity. In November 2020 the bond was launched in the South African and European capital markets, with the final book of demand including strong representation from top SA institutional and international investors.

How did this enable the client?

The convertible bond has enabled Sappi to diversify its investor base by going outside of traditional bank funders and fixed income investors. It has allowed the company to maintain strong liquidity while funding the capex for a material long-term project. Sappi’s Saiccor expansion project is expected to contribute an additional dissolving pulp capacity of 110 000 tons per annum. This landmark deal reaffirms RMB’s position as South Africa’s premier convertible bond adviser and bookrunner, having been bookrunner on seven out of the last 10 South African-linked convertible bonds since 2015.