UPL, formerly United Phosphorus, is the world’s fifth-largest agrochemicals company.
In July 2018, it agreed to acquire agri-pesticides maker Arysta LifeScience Inc. for $4.2 billion in cash. The acquisition was funded primarily via a $3 billion loan from Japanese bank MUFG and RaboBank of The Netherlands.
“ESG investing is becoming massive around the world. The new facility will help us tap a new investor base while simultaneously reduce our cost of borrowings by 35 basis points,” said Jaidev Shroff, global CEO of UPL. “We have been consistently prepaying our loan obligations and will continue to do so.”
These five-year loans, also to be syndicated by the two global banks, are linked to specific environmental targets for UPL starting March 2020 – reduce water consumption by 20% and cut carbon emissions and waste disposal by 25% over five years.
The papers will subsequently be sold down to financial institutions, asset managers, private wealth clients and family offices around the world, especially in Europe, Japan and the US. If the targets are achieved, the company will be able to reduce rates by an additional 5 basis points.
“UPL has been ranked the No. 1 agrochemicals company globally by Sustainalytics ESG Risk Rating Report and is also the only crop protection company to find a mention in S&P’s Global Sustainability Yearbook 2021,” said Shashank Joshi, head of corporate banking at MUFG. “An ESG element in financing adds to the appetite for such corporate papers. The company is not raising new debt, but bringing down its financing costs.”
The crop protection company had earlier raised $400 million through a perpetual bond and followed it up with another $500 million, 10-year bond in May 2020 to repay $500 bonds that matured in October 2021, which stand fully repaid. It also repaid $200 million of the Arysta acquisition debt and another $300 million is being repaid now, company officials said.
“Debt reduction focus is ongoing, with the recent redemption of $410 million bonds a positive and further cuts planned for 4Q,” said Alok Dalal, an analyst with CLSA. “UPL has guided for 2x net debt to Ebitda (ex-perpetual bonds) by end-FY21.”
The Arysta debt was raised at the overseas arm UPL Corporation, which houses the sprawling global operations of the India-listed parent
Abu Dhabi Investment Authority and TPG are the other key investors that came in with a $1.2 billion investment during the Arysta buyout.
UPL shares took a hard knock in December, dropping almost 15% in one day, after an alleged whistle blower complaint that highlighted financial malpractices in the company. The company denied any wrongdoing, with CEO Shroff calling them “completely malicious.”
The number of sustainability-focused index funds and their assets has doubled over the past three years, according to Morningstar. The financial research firm said there were 534 index funds focused on sustainability, overseeing a combined $250 billion at the end of the second quarter 2020.
In the US, which has lagged Europe in ESG investing, assets in sustainable index funds have quadrupled in the past three years and now represent 20% of the total. Combined inflows into both active and passive ESG-focused funds reached $71.1 billion during the second quarter, pushing global assets under management above the $1 trillion mark for the first time.
It’s playing out in India as well. Recently, Aditya Birla Group company Ultratech raised an ESG-linked $400 million foreign currency bond.
ET reported in its January 28 edition that an internal committee of Deutsche Bank had blocked the German bank from becoming an arranger to a $500 million bond issue by Adani Ports and Special Economic Zone due to environmental concerns emanating from the Indian conglomerate’s controversial coal mining project in Australia.