There are three main takeaways. Firstly, The EU regulation on deforestation is a material risk for soy producers’ investors. Furthermore, the EU may extend the regulation from deforestation to other ecosystems. Credit deterioration and higher borrowing costs could be significant for investors.
Secondly, these heightened risks do not appear to be reflected in current credit spread levels. It would be strategic for investors to review investments before the regulation is enforced, which could drive a pricing adjustment.
Lastly, amongst large investment grade issuers, American agribusiness Bunge, with $2.9 bn bonds outstanding, appears the most exposed to a potential spread repricing.