Thursday, June 28, 2007

Nervous companies start to postpone big bond issues

Nervous companies start to postpone big bond issues
By Joanna Chung and Lina Saigol in London
Copyright The Financial Times Limited 2007
Published: June 28 2007 03:00 | Last updated: June 28 2007 03:00

Widespread jitters in the credit markets and rising risk-aversion among investors have scuppered bond deals planned by several companies this week.

MISC yesterday became the first company in Asia to pull its planned bond issue, citing the volatile market conditions sweeping the corporate credit markets in the wake of worries of about the potential fallout from the US subprime mortgages.

The world's biggest owner of liquefied natural gas tankers, which is based in Malaysia, had hired Citigroup and Deutsche Bank to sell $750m of 10-year US dollar bonds and had initially set a price guidance on Monday. Yesterday, it indicated that it would wait until market conditions became more stable.

Meanwhile, steelmaker ArcelorMittal, a potentially major issuer in Europe, decided against proceeding with its inaugural post-merger transaction of a two-part benchmark eurobond sale for similar reasons earlier this week.

Arcelor Finance, the main finance vehicle for the group, had planned to sell €1.5bn worth of bonds, consisting of a five and a 10-year tranche and guidance had been set on Monday.

"The reason for withdrawal was put squarely on the current volatile conditions," says Suki Mann, credit strategist at Société Générale. "The Arcelor deal, in many ways, would have stacked up much better in terms of the credit being such a solid one in its steel and industrial sector against some of the other issuance we've seen.

"But they were probably not prepared to pay a little more premium in order to make the deal work."

Meanwhile, financing for US Foodservice, Thomson Learning and others have faced particular pressure on the most aggressive structures, including "payment-in-kind" or Pik notes that allow borrowers to pay investors with more bonds

US Foodservice, a unit of Dutch supermarket company Ahold, shelved its $650m bond offering, while investors forced the financing deal for the leveraged buy-out of Thomson Learning in the US to pay higher interest on a "cov-lite" loan, and a planned "Pik" component appears to have been abandoned.

Nonetheless, there was some activity in the primary market, but largely restricted to supranational and primary issuers, including German development bank KfW. Analysts note, however, that other issuers to have pulled deals this year amid market turbulence, including US consumer goods maker Procter & Gamble and Italy's Fiat, had recently revisited the market once the sell-off had subsided.

Mr Mann adds: "The market has over-reacted to how much impact the subprime market can have on the global financial market. The market will calm down and this bout of turbulence should subside in the next few weeks."


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