Essar Steel's Sale of Dollar Bonds Said to Be Pulled Amid Market Jitters
Essar Steel Holdings Ltd. pulled a planned sale of dollar-denominated bonds amid rising investor concern over contagion from Europe’s debt crisis, according to three people familiar with the matter.
Essar Steel told investors it may revive the plan after reporting consecutive quarters of growth, said one of the people, who asked not to be identified as the discussions are private. Essar Steel spokesman Manish Kedia couldn’t immediately be reached for comment at the company’s head office in Mumbai.
“Investors are nervous and don’t want to be taking many risks,” Tim Condon, chief Asia economist at ING Groep NV in Singapore, said in a telephone interview. “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.”
Essar Steel said on April 12 that it planned to issue senior notes due in 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.
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 need to be extended to Spain and Portugal, even as Spanish Prime Minister Jose Luis Rodriguez Zapatero called the speculation “complete madness.”
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.
Moody’s Investors Service gave a provisional B2 rating to Essar Steel’s proposed dollar bonds, its fifth-highest speculative-grade ranking, the risk assessor said on April 12. 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 due to mature next year, according to data compiled by Bloomberg.
Essar Energy Ltd., a unit of Essar Group, tumbled in its first day of trading in London yesterday after an initial public offering last week. The stock dropped 30.5 pence, or 7.3 percent, to 389.5 pence a share in London, down from the 420 pence apiece they were sold at last week.
Essar Steel is at least the fourth Indian company to postpone a planned bond sale since February. Union Bank of India Ltd. pulled a dollar bond sale on April 14 after Bank of India and Bank of Baroda canceled issues in February citing volatility in credit markets.
Bank of Baroda and Bank of India returned to the debt market a month later, selling $350 million of 5 1/2-year bonds and $500 million of similar-maturity notes respectively, Bloomberg data show.