Tuesday 10 July 2018 by FIIG Research Company updates

Company updates – Glencore US, JEM Southbank, Mackay Sugar, DBNGP, NextDC

This week, Glencore US receives subpoena for Nigerian operations, JEM Southbank bullet bonds consent event, Mackay Sugar seeks to close potential deal, Moody’s changes outlook on DBNGP’s rating, NextDC completes AUD300m issue, and Susquehanna upgrades Transocean shares

Glencore receives subpoena relating to Nigeria operations

On 3 July 2018, Glencore US (Glencore) announced that it has received a subpoena from the US Department of Justice to produce documents with respect to compliance with the Foreign Corrupt Practices Act. The request relates to Glencore’s operations in Nigeria, the Democratic Republic of Congo and Venezuela.

On the day, Glencore’s share price dropped by about 10% and the price of some of its debt by more than $1. No additional details are available at this stage and, in particular, it is difficult to predict what the potential implications might be. It is worth noting that the largest fine ever levied for a breach of the Foreign Corrupt Practices Act was USD965m against Swedish telecom company Telia Sonera AB.

To put this into context, market consensus for Glencore’s free cash flow for 2018 currently stands at about USD7.5bn.

The following Glencore bonds all rated ‘BBB+’ are available to trade for wholesale investors:

  • Glencore AUD 4.50% September 2019 bond available at YTW – 2.77%pa
  • Glencore USD 4.95% November 2021 bond available at YTW – 3.43%pa

JEM (Southbank) bullet bonds consent event

On 3 July 2018, holders of the JEM-BBSW+1.50%-28Jun20 bullet bonds would have received an email regarding the consent event. The form of responses available to note holders are:

1) consent

2) consent denied

3) no action

Note holders are required to respond by no later than 10:00am AEDT, on Wednesday 11 July 2018.

The following JEM (Southbank) bonds are available to trade for all investors:

  • JEM (Southbank) AUD BBSW+1.50% June 2020 bond available at YTW – 3.57%pa
  • JEM (Southbank) AUD indexed annuity June 2035 bond available at YTW – 4.12%pa

The AFR reports Mackay Sugar is nearing a deal

On 10 July 2018, the Financial Review reported a rumour that Mackay Sugar Ltd (MSL) is nearing a comprehensive recapitalisation plan, which would see a strategic investor take a stake in the company. MSL may be in advanced talks with a major offshore sugar company to recapitalise the business, with Brazil based Cosan SA Industria & Comercio rumoured to be a likely investor.

The company is a New York listed conglomerate producer of bioethanol, sugar and energy. Other logical investors include Suedzucker AG, British Sugar Plc, Tereos Internacional SA, Nordzucker Gmbh & Co and Louis Dreyfus.

According to the AFR note, MSL wants to have the deal signed as early as this week. The potential deal follows MSL’s update to noteholders and shareholders on its recapitalisation plan, which noted the process was running later than expected and hurdles may arise before a deal is signed.

Please read our latest update on Mackay Sugar available here to all investors.

Moody’s changes outlook on DBNGP’s rating

On 5 July 2018, Moody's Investors Service (Moody’s) changed the outlook of DBNGP Finance Co Pty Ltd's (DBNGP Finance) ‘Baa3’ senior secured rating to positive from stable.

"The change in outlook recognises the ongoing and increasing level of linkages between DBNGP and its fellow gas sector subsidiaries under the AGIG umbrella, a factor that increases the likelihood that CKI would deploy the necessary resources to support DBNGP in the unlikely event of DBNGP facing a financially challenging situation", says Moody’s.

The following DBNGP bonds are available to trade:

  • DBNGP AUD 6% October 2019 available to all investors at YTW – 4.28%pa
  • DBNGP AUD 5% October 2020; rated ‘BBB’ and available to wholesale investors at YTW – 3.42%pa

NEXTDC issues AUD300m Notes IV

NextDC has completed its previously announced AUD300m issue of four year (callable after two years) notes with both fixed and floating rate tranches. The notes are unrated, available to wholesale investors and priced at 6.00% for the AUD100m fixed rate tranche and BBSW+3.75% for the AUD200m floating rate tranche. The notes are senior unsecured and will rank equally with NextDC’s existing AUD300m Notes III.

The company will use the net proceeds from the issue of the notes for general business and financing purposes, including investment in the development of new data centre sites and the core supporting infrastructure at these sites, as well as to assist financing potential acquisitions currently under consideration.

The bonds settle on 17 July 2018 and will then be available to trade in the secondary market. Please refer to the Factsheets below for more details:

The NextDC AUD 6.25% June 2021 bond is available to wholesale investors at yield to worst of 4.53%pa.

Susquehanna upgrades Transocean, downgrades Oasis Petroleum

On 9 July 2018, this article reported that Susquehanna Transocean shares were upgraded to Positive from Neutral with a $16 price target, while Oasis Petroleum was downgraded to Neutral from Positive with a $14 price target. 

Susquehanna described the increased rating as further leverage for the recovering industry, stating: “Offshore floater contracting activity has begun to rebound, and we believe more positive commentary across several of the companies suggests the industry is beginning to heal, and better utilisation could be ahead in 2019 and 2020.”

The firm considered Oasis Petroleum shares to have reached full value at 55% year to date and highlighted that the SPDR S&P Oil and Gas Exploration and Production ETF is only 18% higher.

The Transocean USD 6.00% July 2023 bond rated ‘B+’ is available to wholesale investors at YTW of 6.62%pa.


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