Full Text Available
Note: Clicking the button above will open the full text document at the original institutional repository in a new window.
An analysis of why SAPPI Limited had to issue foreign denominated debt
SAPPI Limited ("SAPPI") is a company that was established in South Africa in the 1930's and has grown into a global player in the paper and pulp industry, as well as the chemical cellulose industry. Historical financing decisions made in the growth phases of the company's life cycle left it with the...
Saved in:
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Thesis |
| Language: | English |
| Published: |
Department of Finance and Tax
2017
|
| Subjects: | |
| Tags: |
No Tags, Be the first to tag this record!
|
| _version_ | 1867613147931607040 |
|---|---|
| access_status_str | Open Access |
| author | Weimann, Dylan |
| author2 | Holman, Glen |
| author_browse | Holman, Glen Weimann, Dylan |
| author_facet | Holman, Glen Weimann, Dylan |
| author_sort | Weimann, Dylan |
| collection | Thesis |
| description | SAPPI Limited ("SAPPI") is a company that was established in South Africa in the 1930's and has grown into a global player in the paper and pulp industry, as well as the chemical cellulose industry. Historical financing decisions made in the growth phases of the company's life cycle left it with the need to refinance debt obligations payable in the early 2010's. In order to meet these obligations, four callable bonds with high coupon rates denominated in Euro and US Dollar were issued in 2011 and 2012 below investment grade. This study examines the cost at which these high yield bonds were issued by SAPPI and discusses the potential reasoning behind the decisions made by SAPPI in the process to obtain further financing. Financing solutions within the South African market are discussed with the conclusion that the South African listed high yield corporate bond market was not adequate for SAPPI, given its credit rating being below investment grade and the value of funding required. In addition, SAPPI's exposure to foreign currencies through global operations made the Euro and US Dollar denominated bond issues favourable to the business. To illustrate the cost of the bonds issued in both Euro and US Dollar, the second part of this study consists of an analysis of the option‐adjusted spreads at which these bonds were issued. Our analysis involved taking into account the probability of the call provisions being exercised by SAPPI at the date of issue through a detailed application of the option‐adjusted spread methodology and the use of a recombining binomial lattice. Through a quantitative example of the process followed and a discussion of the spreads determined, we indicate the true cost at which finance was obtained by SAPPI for each bond issued. A brief discussion on the hedging decisions taken by SAPPI management on the issuance of the debt has also been included. Furthermore, the retrospective performance of the foreign exchange hedging decisions made have been assessed through movements in global financial markets from the time hedging decisions were enacted up until 30 September 2015. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/22918 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:31:31.816Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2017 |
| publishDateRange | 2017 |
| publishDateSort | 2017 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/22918 An analysis of why SAPPI Limited had to issue foreign denominated debt Weimann, Dylan Holman, Glen Financial and Risk Management SAPPI Limited ("SAPPI") is a company that was established in South Africa in the 1930's and has grown into a global player in the paper and pulp industry, as well as the chemical cellulose industry. Historical financing decisions made in the growth phases of the company's life cycle left it with the need to refinance debt obligations payable in the early 2010's. In order to meet these obligations, four callable bonds with high coupon rates denominated in Euro and US Dollar were issued in 2011 and 2012 below investment grade. This study examines the cost at which these high yield bonds were issued by SAPPI and discusses the potential reasoning behind the decisions made by SAPPI in the process to obtain further financing. Financing solutions within the South African market are discussed with the conclusion that the South African listed high yield corporate bond market was not adequate for SAPPI, given its credit rating being below investment grade and the value of funding required. In addition, SAPPI's exposure to foreign currencies through global operations made the Euro and US Dollar denominated bond issues favourable to the business. To illustrate the cost of the bonds issued in both Euro and US Dollar, the second part of this study consists of an analysis of the option‐adjusted spreads at which these bonds were issued. Our analysis involved taking into account the probability of the call provisions being exercised by SAPPI at the date of issue through a detailed application of the option‐adjusted spread methodology and the use of a recombining binomial lattice. Through a quantitative example of the process followed and a discussion of the spreads determined, we indicate the true cost at which finance was obtained by SAPPI for each bond issued. A brief discussion on the hedging decisions taken by SAPPI management on the issuance of the debt has also been included. Furthermore, the retrospective performance of the foreign exchange hedging decisions made have been assessed through movements in global financial markets from the time hedging decisions were enacted up until 30 September 2015. 2017-01-23T07:56:14Z 2017-01-23T07:56:14Z 2016 Master Thesis Masters MCom http://hdl.handle.net/11427/22918 eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town |
| spellingShingle | Financial and Risk Management Weimann, Dylan An analysis of why SAPPI Limited had to issue foreign denominated debt |
| thesis_degree_str | Master's |
| title | An analysis of why SAPPI Limited had to issue foreign denominated debt |
| title_full | An analysis of why SAPPI Limited had to issue foreign denominated debt |
| title_fullStr | An analysis of why SAPPI Limited had to issue foreign denominated debt |
| title_full_unstemmed | An analysis of why SAPPI Limited had to issue foreign denominated debt |
| title_short | An analysis of why SAPPI Limited had to issue foreign denominated debt |
| title_sort | analysis of why sappi limited had to issue foreign denominated debt |
| topic | Financial and Risk Management |
| url | http://hdl.handle.net/11427/22918 |
| work_keys_str_mv | AT weimanndylan ananalysisofwhysappilimitedhadtoissueforeigndenominateddebt AT weimanndylan analysisofwhysappilimitedhadtoissueforeigndenominateddebt |