Essar Steel's Sale of Dollar Bonds Said to Be Pulled Amid Market Jitters
Essar Steel Holdings Ltd. postponed a sale of dollar-denominated bonds amid rising investor concern over contagion from Europe’s debt crisis.
Essar “decided to postpone their planned financing,” company spokesman Manish Kedia said in a statement.
“Investors are nervous and don’t want to be taking many risks,” Tim Condon, chief Asia economist at ING Groep NV in Singapore, said by phone. “This doesn’t look as serious as it was during the Lehman panic in the fourth quarter of 2008 but it will become more costly for weaker credits to come to market.”
Bond risk jumped in Asia after $1.1 trillion was wiped from the value of global stocks yesterday on concern a rescue package for Greece will be extended to Spain and Portugal. The Markit iTraxx Asia index of credit-default swaps on 50 borrowers outside Japan climbed 11 basis points to 115 as of 3:21 p.m. in Singapore, Royal Bank of Scotland Group Plc prices show.
The extra yield investors demand to own company debt instead of Treasuries rose 4 basis points to 153, the biggest one-day increase since March 30, 2009, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index.
Essar Steel said April 12 it planned to sell senior notes due 2017 to refinance debt and for potential acquisitions. It hired Bank of America Corp., Deutsche Bank AG, Standard Chartered Plc and UBS AG to help it raise at least $750 million, a person familiar with the matter said at the time.
“The company believes that it will be much better placed to achieve their desired result in the debt capital markets following the near to medium term ramp up of its production facilities,” Kedia said in the statement.
Moody’s Investors Service gave a provisional B2 rating to the proposed dollar bonds, the fifth-highest speculative-grade ranking. It graded the company one notch higher at B1.
“The ratings will be under pressure if the bond issuance fails to proceed in view of Essar Steel’s weak liquidity and high refinancing risk,” Moody’s said.
Essar Group, the parent company of Essar Steel, has the equivalent of $1.9 billion in bonds outstanding, with $1 billion maturing next year, according to data compiled by Bloomberg.
Essar Energy Ltd., a unit of Essar Group, tumbled 7.3 percent to 389.5 pence in its first day of trading in London yesterday after an initial public offering last week.
Essar Steel is at least the fourth Indian company to stall a bond sale since February. Union Bank of India Ltd. pulled a dollar-denominated sale April 14 after Bank of India and Bank of Baroda canceled issues in February citing credit-market swings.
Bank of Baroda and Bank of India returned a month later, selling $350 million of 5 1/2-year bonds and $500 million of similar-maturity notes respectively, Bloomberg data show.