Syngenta’s $7bn bond sale hinges on settlement funding plan
Investors concerned by suits alleging sale of GM corn seeds in China before approval
Syngenta has reached a legal settlement that could help it salvage a failed $7bn bond sale, but analysts and investors warned that the Swiss company must first outline how it will fund the legal liabilities while keeping an investment-grade credit rating.
Banks postponed the debt sale on Monday after nervous investors shunned a key part of the financing for ChemChina’s $44bn takeover of the seed and pesticide maker. The sale was meant to refinance $6.5bn of bridge loans backing ChemChina’s $44bn acquisition, shifting banks’ exposure to debt investors.
A chief concern for investors was the raft of lawsuits Syngenta was facing over allegations of selling genetically modified corn seeds before they were approved for sale in China. But a day after pulling the deal, Syngenta said it had reached a settlement in a key trial in Minnesota, which — subject to court approval — would establish a settlement fund for eligible claimants.
The settlement with US farmers does not include separate claims from grain exporters such as Cargill and Archer Daniels Midland, and a spokesman for Syngenta said the company will “continue to defend itself against these claims”. He declined to comment on the size of the settlement, although reports have suggested it is about $1.5bn.
Andrew Brady, an analyst at credit research firm CreditSights, said that to revive the bond sale, Syngenta would have to outline a structure for funding the legal settlement that would not rob it of its investment-grade rating from Standard & Poor’s.
“Given they just did a roadshow to talk about how important the investment-grade rating is to them, I don’t see how they can just scratch all that,” Mr Brady said. “They would have to pay so much more for the bond deal if they blew through those promises.”
BNP Paribas, Citigroup, Credit Suisse, HSBC, MUFG and Santander were bookrunners on the deal.
Syngenta carried strong single A credit ratings before ChemChina’s acquisition, but S&P now pegs the company at BBB-, the lowest rung of investment grade, while Moody’s rating is even lower, in junk territory.
S&P said in a report published last month that ChemChina had indicated that both it and China’s state-owned Assets Supervision and Administration Commission “remain committed” to maintaining this rating “under all scenarios”.
“Given the considerable leverage at ChemChina, financial support to mitigate any litigation liabilities would need to come from Sasac in the form of equity, so that there is no additional debt imposed on Syngenta or ChemChina,” the report said, adding that the ratings could be lowered if this funding is not extended in a “timely and full manner”.
A bond investor said that during calls for the failed offering Syngenta’s management referred to these assurances ChemChina provided to S&P.
“They said they were going to keep it investment-grade and, luckily for them, they’ve now got an early opportunity to prove it,” he said.
Banks running the deal have already indicated to investors that they will insert coupon step-ups into the bond’s documentation, which increase the interest rate Syngenta pays if its credit ratings are cut.
“We plan to come back to the market in coming months, having had productive meetings with potential investors,” the spokesman for Syngenta said.