In a welcome return to the high-yield market, Australian-domiciled Nickel Industries announced completion of a US$400m senior unsecured issue at a coupon of 11.25% maturing 21 October 2028. The new issue will have a first call date of 21 October 2025 (@105.625) and thereafter callable on 21 October 2026 (@102.813) and 21 October 2027 (@100) respectively. The net proceeds will be used to pay down the outstanding US$325m 2024 senior unsecured notes and US$225m 2025 senior secured notes, which will simplify the capital structure, remove all secured debt, and improve the liquidity profile. Consequently, there will be no significant debt maturities until 2028.
Nickel Industries are a producer of nickel pig iron (NPI) and nickel matte, with four smelter assets and one mining asset in Indonesia. Indonesia is one of the largest nickel producers globally. Nickel Industries is ASX-listed and operates in partnership with the world’s largest stainless-steel producer, Tsingshan, which is also the largest shareholder in Nickel Industries. The recent acquisitions (as discussed below) will increase Nickel Industries product diversification and exposure to high-grade nickel and reduce the dependence on the Tsingshan group as its sole off-taker. Nickel Industries estimates that its Class 1 nickel output can rise to 50-78% of total attributable production, with all the metals sold to customers not affiliated with Tsingshan.
Nickel Industries are expected to generate EBITDA of around US$600m pa over 2023 to 2025 on production increases at the Oracle Nickel Project (ONI) and stable margins, driven by strong nickel prices. Rating agencies estimate Nickel Industries production will more than double to above 100,000 tonnes pa of nickel metal by 2023 and 156,000 tonnes pa if the SDI options are exercised. This would place Nickel Industries as one of the six-biggest producers worldwide.
Depending on nickel price assumptions, the EBITDA margin will sit around the 30-35% mark over 2023 to 2026. The EBITDA of around US$600m pa over 2023 to 2025 will cover all major liquidity requirements, including the bonds due over 2024 and 2025. If Nickel Industries, then decide to go ahead on the Excelsior Nickel Cobalt Project (ENC) the company would need to raise an additional US$300m of capital. We expect Nickel Industries would manage any debt/equity raising(s) in line with its B1 / B+ rating. As of FY22, Nickel Industries had an EBITDA leverage of around 2x and EBITDA interest coverage of around 10x respectively. We estimate Nickel Industries will generate around US$400m in free cash flow which could also be used to manage the company’s expansionary plans.
Nickel Industries battery supply-chain strategy was enhanced following the recently signed agreement with Shanghai Decent Investment Group Ltd (SDI) in January 2023. The company acquired a 10% stake in the Huayue Nickel Cobalt Project (HNC) for US$270m from an SDI affiliate and another 10% in ONI for US$75m. It also acquired options to collaborate with SDI on battery nickel – US$25m to participate in the ENC and US$15m in a high-grade nickel matte converter to convert low-grade nickel matte from ONI into high-grade nickel matte, with a capacity of 50,000 tonnes pa.
The relative value on the new issue is appealing versus several other US$ high-yield opportunities that are available. Below we chart the range of US$ high-yield opportunities. The new Nickel Industries deal prices cheaply to the outstanding Fortesque and Mineral Resources lines. We believe Nickel Industries has a stronger credit than Infrabuild and Coronado on a relative comparison. Nickel Industries announced the results of its tender offer yesterday. It received a total notional of US$181.5m worth of 2024s for tender, out of which US$79.4m chose to subscribe to the new 2028s. The company decided to only accept the tender offer of those US$79.4m, hence US$245.6m of the 2024s will remain outstanding.
Source: Bloomberg
Note: Market Estimates use Bloomberg Consensus Numbers
