Sunday, December 3, 2023

Green targets rule $50m loan

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Synlait Milk will reap cheaper interest costs if it hits environmental, social and governance targets in a $50 million, four-year loan with ANZ Bank.
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But if it falls short, that bill will be higher. 

“This is the first time any New Zealand company has agreed with its bankers to link its sustainability agenda to its cost of funds. This is exciting and innovative,” ANZ sustainable finance head Katharine Tapley said.

The loan will effectively transfer ANZ’s existing $50m committed four-year revolver loan with Synlait into an environmental, social and governance (ESG) targets-linked loan and a discount or premium to the base lending margin will be applied, based on its performance around a score of measures. 

Synlait and ANZ refused to give details of the discount or premium, citing commercial sensitivity.

However, Synlait did confirm ANZ’s $50m portion of its $100m secured syndicated revolving credit facility has been transferred to the new loan.

It became a different tranche within the overall syndicated revolving credit facility and the loan has a maturity date of August1 2023, a spokesman said. 

Synlait chief financial officer Nigel Greenwood said it has to be transparent around ESG and therefore needs to report openly in its annual report and soon-to-be-released sustainability reports.

“This information is used to produce an annual risk report produced by Sustainalytics. The report measures Synlait’s risk rating across 11 different measures,” he said. 

Those measures include things like carbon-own operations, land use and biodiversity, supply chain, human capital and business ethics.

Tapley said such lending is a core part of ANZ’s sustainable financing and it is the 10th transaction of its kind completed across its Asia-Pacific network in the last nine months with clients in multiple sectors from transport infrastructure, power generation, water and waste treatment to food production.

ANZ is focused on working with its customers to transition to a low-carbon and more sustainable economy.

The bank’s view is that strong ESG risk and opportunity management is an indicator of strong future performance and also believes it can accelerate the transition by incentivising customers to outperform on their ESG agendas.

Synlait fits the bill for this kind of funding because of its commitment to continuously improving its ESG performance, she said.

Synlait got ahead of other milk processors last year when it committed to reduce greenhouse gas emissions by 35% on-farm and 50% off-farm by 2028. 

The on-farm reduction includes 50% cuts in nitrous oxide, 30% in methane production and 30% in carbon dioxide.

Tapley doesn’t view the loan as a risk.

“We want Synlait’s ESG performance to improve because that means they are producing and providing better milk, which is ultimately better for their farmers, their customers and their communities more broadly,” she said.

Synlait shares last traded at $9.50 and have increased 5.6% this year. – BusinessDesk

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