Berenberg drops Sirius Minerals to 'hold' on suspended bond sale

Analysts at Berenberg downgraded agrochemicals outfit Sirius Minerals from 'buy' to 'hold' on Wednesday after the group's shares plunged a day earlier when it pulled its $500m bond sale.

Berenberg had argued that Sirius Minerals represented "an attractive risk/reward play" over the past year but following news on Tuesday that it has been forced to delay the offering of its bonds, the bank reckoned the risks relating to the project were now "greater than the reward".

"As such, we recommend that potential investors wait until certainty is achieved on the $500m bond offering," said Berenberg.

The company blamed the suspension of the planned bond offering on "current market conditions".

The German bank said Sirius' equity story was centred on the development of its Woodsmith mine in North Yorkshire, which will produce polyhalite, a mineral that could potentially compete within the potash and multi-nutrient fertiliser market.

"We remain positive about the credentials of polyhalite as a multi-nutrient fertiliser when it comes to market post-2020," said Berenberg.

"In our view, Sirius Minerals’ product POLY4 can adequately compete as a speciality fertiliser product on the market given it can offer a cheaper and more environmentally-friendly alternative to existing products like sulphate of potash."

The analysts said farmer economics were under pressure and highlighted that low-cost, yield-enhancing products like polyhalite could grow share in the market, especially in the high-value crop sector.

However, Sirius' $500m bond was a key component of its financing package, given that completion is needed in order for the group to access a $2.5bn revolving credit facility that underpins the Woodsmith project.

Under the terms of the revolving credit facility, Sirius has to complete the high-yield bond offering before the end of September otherwise it cannot draw down on the funds.

"With the deadline for completion now drawing closer, the risk is now too high to argue that Sirius Minerals' shares currently represent an attractive investment."