Johannesburg - Mondi is counting on falling bond yields to reduce the cost of acquisitions as South Africa’s biggest packaging company weighs expansion in Asia.
The decline in borrowing costs would allow Mondi, which joined the UK’s benchmark FTSE 100 index last month, make debt-funded purchases in markets such as China, chief financial officer Andrew King said last week.
The company is expanding in Asia as customers including Procter & Gamble (P&G) and Nestlé focus on local demand from emerging markets to sell products from nappies to microwaveable food.
“The strategy of Mondi is to move with the clients,” Eric Janca at Hypo Capital Management said. “It’s a well-diversified business, which is consumer-oriented. In a volatile environment it will be a better investment.”
The yield on the Johannesburg-based company’s e500 million (R6.6 billion) debt due in April 2017 has fallen 14 basis points to 1.90 percent this year, according to data compiled by Bloomberg. The average yield on dollar debt of emerging-market pulp and paper companies has risen 45 basis points in the same period, according to the JPMorgan Chase CEMBI Pulp & Paper Index.
The decline in Mondi’s yields would enable it to refinance its debt or pursue new deals as “we look to the bond market to fund those acquisitions”, King said. “That obviously reduces the overall funding costs associated with those types of activities.”
The company had spent a year focusing on the integration of e700m German unit Nordenia International and was ready to invest in further expansion, he said.
Mondi had opened a plant in China’s Jiangsu province this year to supply stretchy films for P&G’s range of Pampers diapers, chief executive David Hathorn said in an interview last month.
The company has also opened a cement bags plant in Sulaymaniyah, northern Iraq, to tap growing demand in the country, according to its website.
Mondi shares dropped by 1.15 percent to close at R172 on the JSE on Friday. – Bloomberg