The Finnish-Swedish forest industry group Stora Enso is preparing a new capital raising through a hybrid bond, as part of efforts to reinforce its financial position.
The company is considering issuing a euro-denominated benchmark-sized hybrid bond with two different maturities. The transaction could take place in the near term, depending on market conditions.
– The purpose of the issuance is, among other things, to further strengthen the company’s balance sheet, Stora Enso said in a statement.
Hybrid bonds offer flexibility at a cost
Hybrid bonds are a financing instrument positioned between equity and traditional debt. They are partly treated as equity by credit rating agencies, making them attractive for companies seeking to improve financial metrics without issuing new shares.
However, this flexibility comes at a price. Hybrid instruments typically carry higher interest rates, reflecting the increased risk for investors. While interest payments can sometimes be deferred, this often leads to higher long-term costs.
For Stora Enso, the structure provides an opportunity to improve key indicators such as leverage and credit ratings, which are critical in a capital-intensive industry.
Market pressures drive funding needs
The planned issuance comes against a backdrop of more challenging market conditions. After several years of strong earnings, demand for paper and packaging materials has become more volatile, while costs for energy, raw materials and logistics have increased.
In response, the company has implemented significant restructuring measures, including the closure of paper production units and a shift toward packaging, renewable materials and wood-based products.
Stora Enso has previously signalled the need to strengthen its balance sheet and maintain financial flexibility to manage economic cycles and future investment requirements.
Part of a broader financial strategy
The hybrid bond is part of a broader financial strategy aimed at balancing investments, debt levels and cash flow. Historically, Stora Enso has relied on a mix of bonds, bank loans and hybrid instruments to finance its operations.
The company has also worked to reduce leverage and improve its credit profile in recent years.
Analysts note that hybrid bonds are often used during periods of uncertainty, allowing companies to bolster their financial position without diluting shareholders. At the same time, such financing increases exposure to capital market conditions.
If interest rates remain elevated, the cost of this type of funding could become significant.
Source: Stora Enso
Fact check
Hybrid bonds are widely used by large industrial companies to strengthen balance sheets. While they are partly treated as equity by rating agencies, they are more expensive than traditional debt and carry higher risk for investors.
