Bunge Bondholders at Risk as EU Rules Aim to Protect Rainforests

Investors in Bunge Ltd.’s $2.9 billion of bonds are the most exposed to the European Union’s plan to ban imports of raw materials produced on deforested land.

(Bloomberg) — Investors in Bunge Ltd.’s $2.9 billion of bonds are the most exposed to the European Union’s plan to ban imports of raw materials produced on deforested land.

That’s the warning, at least, of analysts at the Anthropocene Fixed Income Institute who say the crop trader’s investors are among those at risk of the credit impact of the EU’s efforts. The new rules require companies that sell certain commodities in the region to prove they’ve avoided using deforested land.

The regulation could lead to costly penalties and the loss of market access for firms that struggle meet the standards — and the risk is high for soy traders including Bunge and Brazil’s Andre Maggi Participacoes SA, according to analysts Stéphanie Mielnik and Thomas White.

“Credit deterioration and higher borrowing costs could be significant for investors,” they wrote in a Wednesday note. “These heightened risks do not appear to be reflected in current credit spread levels.” 

Representatives for Bunge and Andre Maggi Participacoes didn’t respond to requests for comment.

The EU’s rules aim to stop the felling of forests to grow products such as palm oil, soy, beef, wood, rubber, cocoa and coffee that are sold in Europe. Companies have until the end of 2024 to comply, with a further six-month grace period for small businesses. 

While some of the world’s largest agriculture producers are pushing back against the rules, Mielnik and White are urging investors to factor in the regulation when assessing the debt of crop companies.

Soy producers are especially vulnerable, the analysts wrote, as Europe ranks as one of the largest importers of the crop. At least half of those imports are sourced from Brazil.

“It would be strategic for investors to review investments before the regulation is enforced, which could drive a pricing adjustment,” wrote the analysts.

The Anthropocene Fixed Income Institute’s analysis consisted of 24 soy traders that Trase Finance found have high exposure to Brazil’s conversion of natural ecosystems into farmland. 

In total, those firms have more than $43 billion of outstanding debt denominated in global currencies, and nearly 35% are set to mature before 2027, according to the analysis. 

The potential need for refinancing is an opportunity for investors to push companies on their exposure to the latest EU rules, wrote Mielnik and White.

–With assistance from Dayanne Sousa and Kathleen Seaman.

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