Pembroke secures Nordic funding
Australian steelmaking coal producer Pembroke Olive Downs has accessed the Nordic bond market for a second time with a US$550m 11.5% five-year senior secured note arranged by Norwegian investment bank Clarksons Securities.
The proceeds of the Oslo-listed bond will refinance Pembroke’s existing debt facilities, including its outstanding US$90.5m Nordic bond issued in December 2021, and support the next stage of the expansion of Queensland steelmaking coal complex Olive Downs. The company plans to add new infrastructure to existing operations with the aim of doubling metallurgical coal production capacity from six million tonnes per annum to at least 12 million tonnes.
“The bond received strong support from investors globally, demonstrating the confidence of the market in Pembroke and in the Olive Downs,” said Barry Tudor, chairman, CEO and founder of privately owned parent Pembroke Resources.
In contrast to the traditional 144A/Reg S standard which requires two ratings, Nordic bonds need no credit rating and have limited disclosure, due diligence and arranger liability, enabling companies to move quickly. The trade-off is that they often have strict covenants around things like debt ratios.
Light-touch Nordic bonds, which evolved from traditional high-yield bonds, encompass the ESG spectrum, including sustainable bonds and, in spite of Scandinavia's green reputation, oil and gas issuance from emerging and frontier markets that often struggle in conventional bond markets.
Though the Nordic high-yield market's early growth was largely driven by the oil and gas sector, that share has decreased over the years. Oil services accounted for 32% of issuance volume by non-Nordic issuers last year, down from 47% in 2023, according to research by investment administration and compliance firms Nordic Trustee and Ocorian.
Last year, Yinson Production Offshore, part of Malaysia's Yinson Group, which owns and operates floating vessels for the offshore oil and gas industry, printed a US$500m Nordic bond which it tapped for US$100m, making it the biggest Asian issue in that market.
Australian coal miners have sold very few bonds in any jurisdiction in recent years, partly because of the high international price of coal and partly because private credit and hedge funds have stepped in when needed, according to a DCM banker.
“Coal miners have not had to put their hands out for capital and when they have, they have not always had a great reception, even in the normally welcoming Yankee market,” he said.
The banker cited Port of Newcastle, the world's largest thermal coal export port, which struggled for traction on a debut US$300m debut 10-year bond in November 2021 as investors questioned the company's environmental standing.
Furthermore, lead managers Citigroup and National Australia Bank attracted negative press coverage in Australia for their involvement, fanning banks’ withdrawal from the fossil fuels sector.
More positively, Queensland metallurgical coal miner Coronado, rated B1/BB–/BB–, smoothly sold a US$400m 9.25% five-year non-call two-year Yankee note in September 2024 via Goldman Sachs, Bank of America and Deutsche Bank.
The success of the Coronado trade indicates a greater willingness among banks and US investors to look at producers of coal used for steelmaking as opposed to bond offerings from "dirtier" thermal coal companies.
With this in mind fellow Australian metallurgical coal miners could expect a favourable reception in the Yankee high-yield market, including Pembroke Olive Downs – once it secures the prerequisite two ratings.
ESG wind down
Pembroke Resources, which acquired Olive Downs in May 2016, secured project financing of about A$500m in December 2021 for the first stage of the project, which was completed at the beginning of 2024.
This included Pembroke Olive Downs' debut Nordic bond, a US$95m 10% seven-year print, and a A$361m loan, including an up to A$167.5m 10-year term facility from the North Australia Infrastructure Fund.
The loan also included four other tranches, a A$44.5m five-year revolving credit facility, an A$80m five-year guarantee facility, a A$30m seven-year revolver and a A$39.12m seven-year term loan, which were provided by NAB and Sumitomo Mitsui Banking Corp, according to LSEG LPC data.
Explaining its latest funding choice, Pembroke's Tudor said the Nordic market is well established with a successful track record of attracting investors from around the world.
He also stressed the bank lending market was no longer a viable option as the number of banks willing to fund the coal sector under their designated criteria had dropped from around 20 a few years ago to two by the time the first leg of the project was completed.
The DCM banker believes the green tide may be turning again, however, as banks begin to wind back their ESG priorities, especially since Donald Trump, who has called climate change a "hoax" and "one of the greatest scams of all time", returned to the White House.
Indeed, Australia’s Macquarie Group has just joined the six biggest US banks – Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and JP Morgan – in withdrawing from the Net Zero Banking Alliance following Trump's reelection.
Commonwealth Bank of Australia, National Australia Bank, Westpac, ANZ and Bank of Queensland remain in the NZBA, which requires banks' financed emissions to be aligned with “pathways to net zero” by 2050, effectively preventing them from lending to coal miners or advising them on capital market transactions.