There is value in the Nufarm AUD Perps (ASX: NFNG) currently trading ~A$93 as we see a
good chance of management opportunistically looking to redeem these junior notes to be
replaced with senior debt. Given the company is performing well and we see potential for a
redemption/buyback, it’s a compelling opportunity to add NFNG to portfolios at current
entry levels.
Nufarm is a crop protection and specialist seeds company offering a product which helps
farmers to protect their crops against damage caused by weeds, pests, and disease. Nufarm
has manufacturing and marketing operations throughout Australia, New Zealand, Asia, the
America’s and Europe and sells products in more than 100 countries. A large portion of the
Nufarm revenues and EBITDA comes from the crop protection business, which continues to
see strong demand in key grain producing regions around the globe.
The NFNG pays a margin of S/A BBSW + 390. Swap rates have soared on the back of rising
interest rates making the distribution payments on these junior notes relatively expensive
funding (current coupon of 7.66%). When Nufarm issued their USD bond back in January
2022, these junior notes were cheap funding for the company given that base rates at that
time were practically zero. However, that dynamic has changed and now these junior notes
are almost 3% more expensive than the Nufarm senior notes, which were issued at a fixed
rate of 5%.
A move by Nufarm to redeem the notes would be required at par, which would provide a
healthy return upon buying at approx. $93. However, even if the notes are not redeemed, we
still see value from a carry perspective in holding these securities. In the event that they don’t
call, the junior notes still pay a healthy coupon of S/A BBSW +390 (next coupon in October
likely to be set at ~8.5%).
Please contact your Relationship Manager to find out more about this and other fixed income
investments.
