Germany’s Delivery Hero said it raised 1 billion euros ($1.07 billion) through an issue of convertible debt late on Monday, after wooing investors with significantly higher interest payments than it has offered in the past.
Banks on the deal initially marketed the seven-year bond with an annual coupon as high as 4%, but were able to price the notes at 3.25% in a sign of strong demand. The conversion premium was 40%.
The coupon is significantly higher than the international food delivery company has paid on its recent deals and reflects a jump in corporate borrowing costs following the fastest tightening in interest rates by major central banks since the 1980s.
The company is using the funds to redeem an existing convertible bond due in 2024 and pay down another bond due the following year.
The bonds maturing in 2024 and 2025, both issued in 2020, pay a coupon of 0.25% and 0.88%, respectively. The company last priced two convertible bonds in 2021, one with a duration of less than five years and an annual coupon of 1.00% and another due in seven and half years, paying 2.13%.
Though Delivery Hero is a recurrent issuer of equity-linked securities, the deal illustrates a trend among listed European firms turning to convertible bonds for financing as an alternative to straight-up equity or debt.
At the end of January, German arms manufacturer Rheinmetall raised 1 billion euros in convertible notes to help fund its acquisition of Expal Systems.
However, despite rising interest rates, the industrials firm was able to secure cheaper terms than Delivery Hero. Rheinmetall’s bonds, due in 2028 and 2030, pay interest of 1.88% and 2.25%, respectively.
A beneficiary of the COVID-19 pandemic, Delivery Hero’s shares fell in early 2022 amid darkening economic prospects and have yet to recover. The stock was down more than 2% on Tuesday morning from Monday’s close.
Last week, the company posted a negative earnings before interest, tax, depreciation and amortisation (EBITDA) margin and free cash-flow for the previous quarter, but said it expected to reach free cash-flow break-even by the end of 2023.
Alongside the convertible bond sale, the banks on the deal have placed 237 million euros worth of existing shares on behalf of convertible bond investors as a hedging manoeuvre, according to a bookrunner message seen by Reuters.
Reuters