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Morgan Stanley Says Bumi, SK Energy in Contagion Risk

Bondholders of PT Bumi Resources, Korea National Housing Corp. and SK Energy Co. are most at risk should Europe’s debt crisis spread into Asia, according to Morgan Stanley.

The companies are “burning reserves” and have low “funding flexibility,” Viktor Hjort, Morgan Stanley’s Hong Kong-based credit strategist, wrote in a note to clients. “In a contagion environment credit-default risk narrows down to a single factor -- access to funding,” he said.

European policy makers unveiled a loan package worth almost $1 trillion and a program of bond purchases yesterday in a bid to reassure investors after yields on Greek, Portuguese and Spanish debt soared. Bond sales in Asia outside Japan shrank to $4.42 billion last week from $7.43 billion in the previous five-day period, according to data compiled by Bloomberg, as volatility deterred borrowers.

Bumi Resources, an Indonesian coal producer that has $638 million of debt due by the end of 2012, had its share-price estimate cut to 2,300 rupiah from 2,400 rupiah by Goldman Sachs Group Inc. last month after profit declined in 2009.

The extra yield investors demand to own the Jakarta-based company’s $300 million of 12 percent notes callable in 2013 has risen 63 basis points this month to 747 basis points, according to ING Groep NV prices on Bloomberg. A basis point is 0.01 percentage point.

Korean Market

The company has no plans to raise any more debt and aims to “reduce leveraging by more than $1 billion” this year, Dileep Srivastava, Bumi’s head of investor relations, said in an e-mailed response to queries from Bloomberg News.

“The thermal coal business is very robust with output at record breaking levels and prices are back to pre-global financial crisis levels,” Srivastava said.

No-one at Korea National Housing’s media department was available for immediate comment.

South Korean dollar-denominated bonds are the worst performers in Asia this year, returning 2.6 percent compared with 4.3 percent in Malaysia and 5.2 percent in India, HSBC Holdings Plc indexes show.

SK Energy meets most of its funding in the domestic market, which remains relatively unscathed amid the European crisis, a company spokesman who asked not to be identified said in an e-mailed response to questions. SK Energy is borrowing at lower costs than last year, he said.


Most investment-grade companies in Asia have borrowed all they need for the next two years and many of the region’s speculative-grade firms are in “unusually good” shape after selling bonds in the first quarter of this year, Hjort said in the report e-mailed yesterday.

Speculative-grade bonds, also known as high-yield or junk, are rated lower than Baa3 by Moody’s and below BBB- by Standard & Poor’s.

India’s Essar Steel Holdings Ltd. and Chinese shopping mall developer Renhe Commercial Holdings Co. were among companies that delayed bond sales this month citing poor market conditions. Swire Properties Ltd., landlord to Time Warner Inc. in Hong Kong, shelved plans to raise as much as HK$20.8 billion ($2.7 billion) in an initial public offering.

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