Lanxess issues 500m yuan in 'dim sum' bonds

Updated: 2012-02-10 13:52

By Shi Jing (China Daily)

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German firm aims to utilize funds to build new facility in Jiangsu province

SHANGHAI - The German specialty chemicals company Lanxess AG announced on Thursday that it will issue Chinese offshore renminbi-dominated bonds in Hong Kong worth 500 million yuan ($79.4 million) to build a new leather chemicals plant in Changzhou, Jiangsu province and a new pigment plant.

According to the company's news release, the bonds have a yearly coupon of 3.95 percent and will begin trading on Monday. The bonds have been placed with institutional investors in Asia and Europe.

"Investor allocation in this new bond is approximately 50 percent from Asia and 50 percent from Europe," said Martin Kraemer, chief executive officer of Lanxess Greater China.

Joint lead-managers of the issue are Standard Chartered Bank PLC, Deutsche Bank AG and Bank of America-Merrill Lynch, the investment banking unit of Bank of America Corp.

Lanxess is the first German chemicals company to issue an RMB-denominated bond, according to the company's news release.

"The successful placement of the 'Dim Sum' bond reflects the confidence investors have in Lanxess' solid financial position," said Bernhard Duettmann, the company's chief financial officer. "The bond also underlines the growing importance of our commitment to the Chinese market."

The company said that it will also invest about 30 million euros ($40 million) in the plant in Changzhou.

It is the company's single largest investment in the leather chemicals business in China to date, according to the news release. It added that the new plant will have an annual production capacity of 50,000 tons and will create approximately 150 jobs.

"The ground-breaking for this Changzhou facility started in July last year and we expect the plant to start running in the first half of next year," Kraemer said.

"The second project that will also use the financing is a pigment facility. Lanxess is currently considering whether to increase its pigment activities in China by investing in a new plant for the manufacture of inorganic pigments," he added.

According to Kraemer, the debt crisis sweeping Europe has "not at all" affected the company's funding process.

"What we see currently is the public debt crisis. If you look at the corporates coming into the market, the financing situation is quite normal," he said

"Although our financial figures for 2011 have not been released, we have guided the market for EBITDA (earnings before interest, taxes, depreciation and amortization) growth of 20 percent, which will translate into EBITDA of 1.1 billion euros last year. That's the highest ever," he added.

China contributed roughly 11 percent of Lanxess' overall business in 2010. Last year was the first time that the Chinese market exceeded 1 billion euros in sales.

Although Germany is still the single-biggest market for Lanxess, contributing about 18.5 percent of the company's annual sales, Kraemer said the prime focus is currently on China and also Brazil and India.

He explained that the company has avoided the effects of the European debt crisis by the use of a long-term financing strategy and by always having "liquid means" available during the crisis.

"A big advantage for Lanxess is our credit rating. We have a BBB credit rating from Standard and Poor's and Baa2 from Moody's, which are firmly in the investment grade," he said.

"Issuing bonds in Hong Kong is cheaper compared with going to banks here in the Chinese mainland. Lanxess' financial policies have always been prudent. For us, it is important not to always go for the cheapest (means of finance), but also to have a range of alternative financing instruments."