HeidelbergCement continues to refinance borrowing with the successful sale of Eurobonds amounting to EUR2.5bn. The bonds were placed with institutional investors, mainly in Europe, comprising three tranches of EUR1bn 5 year, a EUR1bn 7 year as well as a EUR500m 10-year transaction, the company reported.
The Eurobonds received lively investor interest and were several times oversubscribed. Initially, HC had hoped to sell at least EUR1bn (US$1.47bn) bonds in what was its first note issue in almost two years. The sale indicates both capital market appetite for bonds as well as support for HeidelbergCement: "The successful placement of the bonds furthermore underlines the confidence of the capital markets in HeidelbergCement’s strategy and strongly supports the improvement of the liability profile of the company," says CEO Dr. Bernhard Scheifele.
The proceeds of the combined transaction will be exclusively used to partly repay the syndicated loan, resulting in a significant reduction of the company’s long-term loans, which stood at in excess of EUR11bn as of June 30, 2009.
The bond issuance follows the share sale completed last week which raised an additional EUR2.25bn for the company, the proceeds of which formed the first partial repayment of HC’s EUR8.7bn secured syndicated loan facility. The effect of the capital increase was to dilute the group’s major shareholders – Spohn Cement GmbH and VEM Vermögensverwaltung GmbH and certain subsidiaries of VEM, all of which are controlled by Mr Ludwig Merckle – to 24.4 per cent from over 70 per cent, and increased free float to 75.6 per cent from 21.2 per cent.
Implications The success of this bond issuance, together with the capital increase, has already prompted Standard & Poor’s to raise the long-term corporate credit rating to ’B+’ from ’B-’, with more upside on the way. "The positive outlook reflects our view of potential further rating upside should the group’s credit metrics recover from an anticipated trough this year," the ratings agency reported after the sale.
Meanwhile, Fitch’s latest forecasts for HC include a mid-teen percentage point decline in revenue in 2009 and a flat performance in 2010, as well as deteriorating EBITDA margins in 2009 before a slight recovery in 2010. Under this scenario, expected lower cash flow from operations is likely to result in only slightly positive free cash flow compared to a five-year average of four per cent free cash flow/revenue. Net leverage is forecast to be below 3.8x by FYE11.