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Suzano considering green-linked bank debt - CFO

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By Aaron Weinman
·4 min read
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By Aaron Weinman

NEW YORK, Feb 19 (LPC) - Brazilian pulp and paper exporter Suzano Papel e Celulose SA has started discussions with its relationship banks over potential green or sustainability-linked loans, a move that comes as the company looks to reduce its carbon footprint and drive the development of new products from renewable sources.

Suzano, which has already issued green bonds in the capital markets, is one of Latin America's largest producers of printing and packaging paper, and the company is under pressure from stakeholders and lenders to introduce more sustainable measures in an industry not typically known for environmentally friendly business practices.

"We have several relationship banks that are worried about sustainability in our portfolio," Marcelo Bacci, Suzano's chief financial officer, told Refinitiv in an interview on Wednesday. "We want to turn (sustainability) into a point of differentiation for us. This can be in the way of using a structure similar for a green bond into a green loan. This is under discussion and may be used in the future."

Suzano has prioritized the research and development of renewable-based products that could replace fossil-based materials in sectors the company is active in, such as textiles, construction and fuels. Green or environmental, social and governance (ESG) financing instruments, which must align with sustainability-linked loan or green bond principles, is one way the company can fund these investments, according to Bacci.

"We may come up with loans linked to sustainability in some way. The more the bar is raised (by lending banks asking Suzano for more sustainable practices) this is better for us because we have conditions to do more than what they request," Bacci said in the interview held on the sidelines of Suzano's investor day at the New York Stock Exchange.

Interest in green loans has gathered pace among corporate borrowers looking to not only diversify their lender base, but also enhance their reputation with investors and consumers that place a higher priority on sustainability. But unlike Europe, where ESG financing has a longer track record, green loans has been slow to take off in the Americas as companies are yet to gain a deeper understanding of the debt instruments.

ROADBLOCK

ESG-linked bank loans remain few and far between throughout Latin America's corporate borrowing base, with only a handful coming to the US dollar market in the last two years.

In April 2018, Spanish utility Iberdrola raised a US$400m loan for its Mexican subsidiary, and in November of that year, Peruvian conglomerate Ferreycorp signed a US$70m loan with BBVA. Last July Mexican real estate investor Fibra Uno signed a US$1.1bn five-year loan linked to sustainable practices, while Argentine wind farm operator Parque Eolico closed a US$475m three-year green loan with five banks in the same month. In September, Chilean paper company Empresas CMPC SA closed a US$100m five-year green loan in Japan.

Hurdles stifling the growth of ESG-linked finance in Latin America include the extra documentation costs involved in obtaining the necessary certification and the lengthy education process that lenders must undertake to inform the region's companies of new financing instruments, banking sources said.

Given that green, or ESG-linked, loans are still in their infancy in Latin America, bankers will rely on well-known corporations such as Suzano to advance a green agenda. Companies with greater cash flow can easily cover the costs of raising ESG-linked money and as a frequent bond issuer, Suzano will be constantly scrutinized by lenders over its compliance with ESG guidelines, the sources said.

Earlier this month, the paper exporter tapped 12 of its relationship banks for an US$850m loan tied to its export contracts, commonly known as a pre-export financing facility. The six-year loan was finalized at a rate of 115bp over Libor, Bacci said.

Suzano wrapped up a merger with fellow Brazilian pulp and paper company Fibria Celulose SA in January of last year to become one of the world's largest paper producers. A group of banks led by BNP Paribas, JP Morgan, Mizuho and Rabobank underwrote US$9.2bn in acquisition financing in March 2018, Refinitiv LPC reported at the time. (Reporting by Aaron Weinman. Editing by Kristen Haunss)