UltraTech Cement to raise first sustainable offshore bonds for $400 mn

UltraTech Cement to raise first sustainable offshore bonds for $400 mn

MUMBAI: Birla-owned , India’s largest cement producer, is tapping the overseas bond market for the first time amid signs of improving demand for construction works and growing environmental concerns over cement manufacturing.

The company launched a roadshow to raise up to $400 million via overseas bond sales on Thursday.

The proposed bond sale assumed significance as these bonds are marked as ‘sustainable’ or ESG (Environmental, Social and Governance) in market parlance raised by a cement company that emits pollutants at the time of manufacturing.

The bonds are of 10-year maturity and will be priced after adding a mark-up over the 10-year US Treasury.

The issuer has incorporated a clause of interest step-up in the investor terms. If the company fails to achieve the target for environmental sustainability during the next nine years, an additional 25 basis points will be added to the coupon after that and be paid to investors.

Like its other peers, UltraTech too faces high environmental risk as a cement producer “due to costs associated with air and carbon regulation compliance.” Such risk is said to be mitigated by UltraTech’s commitment to environmental management through various initiatives.

JP Morgan and HSBC are helping the company to raise the money. The proposed bonds will likely open for subscription early next week. These bonds are marked as 144A, which allows global investors, including from the US. The company began virtual roadshows with investors across the world on Thursday.

The proceeds from the issuance will be used to refinance existing rupee debt with the remainder reserved for regular ongoing capital expenditure requirements and general corporate purposes, the company said in a customary stock exchange notification.

“By repaying local bank loans it will create space for more local loans. The company is seeking to expand in coming quarters with the economy showing signs of recovery,” said a senior executive involved in the fund-raising exercise.

Moody’s Investors Service graded the bonds with Baa3, the lowest rank in the investment grade category but with negative outlook.

“The negative outlook reflects the fact that UltraTech’s operations are closely tied to India’s economy, and thus its outlook mirrors that of the sovereign,” Moody’s said in a report.

UltraTech maintains conservative financial policies and has historically funded its acquisitions with a mix of debt and equity, it said. Environmental considerations are material to today’s rating action.

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