2012 Integrated report - Sappi

Chief financial officer’s report continued
Section 5 – Balance sheet continued
> A key objective for 2012 was the refinancing of the group’s
most expensive debt, the US$300 million and €350 million
2014 bonds. In June 2012, we issued a new US$300 million
seven-year bond and a US$400 million five-year bond issued
at a coupon of 8.375% and 7.75% respectively.
> The full proceeds of these new bonds were used to redeem
the majority of the 2014 bonds. The remaining €31 million
balance of the 2014 bonds are expected to be redeemed
in quarter 1 of the 2013 financial year, using cash proceeds
from the sale of the Biberist Mill.
> The remaining balance of €9 million of the Oesterreichische
Kontrollbank (OeKB) China facility was repaid in September
2012 after agreement was reached for the sale of the Jiangxi
investment.
> In August 2012, a new €136 million five-year amortising loan
was taken up for the purpose of funding the dissolving wood
pulp conversion project at Cloquet. This syndicated loan is
funded by the OeKB, an Austrian development bank, and
syndicated to Sappi relationship banks. As in previous
transactions, the OeKB provides the funding and the Sappi
credit risk is guaranteed to the OeKB by four Austrian
relationship banks.
> The early repayment of the 2014 bonds required the
simultaneous unwinding of currency swaps attached to
the bonds, resulting in a positive cash settlement of
US$43 million as the movement of the US Dollar against the
Euro was favourable since taking up the swaps in 2009.
> The annual reduction in cash finance charges as a result of
the above refinancing will be approximately US$30 million.
The accelerated amortisations as a consequence of the 2014
bond refinancing will reduce the income statement charge by
a further amount of approximately US$15 million per annum.
Following the refinancing, the normalised finance costs will
improve to approximately US$160 million per annum.
We believe the liquidity position is good and continues to improve,
with our cash holdings exceeding our short term obligations
by US$379 million at the 2012 year end. In addition, we have
US$556 million unutilised committed facilities, including
a revolving credit facility in Europe of US$450 million which
provides further flexibility.
Movement in net debt
The movement of our net debt over fiscal 2012 is explained in the
table below:
US$ million
Net debt at September 2011 2,100
Net cash generated in 2012 (127)
Currency translation impact (54)
Fair value and other non-cash adjustments 17
Cost of refinancing 2014 bonds 86
Cash settlement of IRCS unwind related to 2014
bond repayment (43)
Net debt at September 2012 1,979
Debt funding structure
The Sappi group principally takes up debt in two legal entities.
Sappi Southern Africa (Pty) Limited issues debt in the local market
for its own funding requirements and Sappi Papier Holding
GmbH, which is our international holding company, issues debt
in the international money and capital markets to fund our
non-South African businesses. Sappi Papier Holding’s long term
debt is supported by a Sappi Limited guarantee and the financial
covenants on certain of its debt are based on the ratios of the
consolidated Sappi Limited group. The covenants applicable to
the debt of these two entities and their respective credit ratings
are discussed below.
The diagram below depicts our debt funding structure.
These activities have materially improved the group’s debt maturity
profile. Please refer to the group debt profile section below.
Structure of net debt and liquidity
The structure of our net debt at September 2012 and 2011 is
summarised below:
Sappi Limited guarantee*
Sappi Limited
US$ million 2012 2011
Long term debt 2,358 2,289
Secured debt 1,424 1,426
Unsecured debt 741 719
Securitisation funding 380 368
Less: Short term portion (187) (224)
Net short term debt (cash) (379) (189)
Sappi Southern
Africa (SSA)
Sappi Papier
Holding (SPH)
debt
Non-South
African debt
Overdrafts and short term loans 79 226
Short term portion of
long term debt 187 224
Less: Cash (645) (639)
Net debt 1,979 2,100
Sappi
Europe
Sappi
North America
Sappi
Trading
* Sappi Limited provides guarantees for long term non-South African debt.
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