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Indian billionaire Anil Agarwal’s Vedanta Resources priced a record-breaking $1.65 billion high-yield bond early Friday morning after a three-year absence from the international bond market.
The UK-listed mining company raised the money through a dual-tranche five- and 10-year issue that is Asia’s biggest high-yield corporate bond to date, according to Dealogic (excluding bonds issued by US entities owned by Asian parents).
The jumbo deal crossed the line despite myriad challenges and was even upsized slightly. Investors had to contend with volatile credit conditions, uncertainty about Vedanta’s Cairn India acquisition and headline risk surrounding Vedanta’s subsidiary Sesa Goa, which has been accused of financial irregularities.
Barclays Capital, Citi, Credit Suisse, Royal Bank of Scotland and Standard Chartered were joint global coordinators and bookrunners. Goldman Sachs and Morgan Stanley were joint bookrunners. UniCredit was a co-lead. The banks on the deal played a role in Vedanta’s acquisition financing.
The deal was expected to raise $1.5 billion split across the five- and 10-year bonds, and ended up raising slightly more than that. US and European investors familiar with the Vedanta name drove demand for the deal, particularly for the long-dated tranche.
The 10-year bond raised $900 million and attracted an order book of $2.4 billion from more than 200 investors. The book was anchored by US investors, who bought 48% of the deal. European investors bought 36% and Asian investors bought only 16%. Fund managers bought 78%, insurance, pension and others 9%, private banks 6% and banks 5%.
The five-year tranche raised $750 million with a $1.8 billion book from more than 200 accounts. US investors bought 38%, European investors 33% and Asian investors 29%. Fund managers bought 60%, private banks 26%, banks 9% and insurance, pension and others 5%. Most investors participated in both tranches, with a total of 228 accounts overall.
The guidance on the five-year tranche was released at 6.75% to 7%, and 8.25% to 8.5% for the 10-year bond. Both tranches priced at the tight end of guidance. The five-year tranche was whispered in the area of 7%, while the 10-year tranche was whispered at low- to mid-8%.
During the marketing period, one regional investor said the 10-year bonds did not offer much pick-up over the five-year bonds and this probably explained the low Asian participation in the longer-dated tranche.
The five-year bonds paid a spread of 506.7bp over Treasuries, while the 10-year bonds paid a spread of 519.1bp over Treasuries.
The bonds took some time to be freed to trade due to a delay in sign-offs. According to one banker on the transaction, the bonds were quoted at 100/100.2 for both tranches, slightly above the par issue price on the offer — which seemed a good outcome given the soft markets. However, another banker away from the deal put it at 99.625/99.875 for both tranches.
Vedanta has outstanding January 2014s and July 2018s, which were yielding 5.33% and 7.45% when the deal was being marketed. Both bonds were fairly illiquid.
According to one source familiar with the deal, the new five-year bonds which mature June 2016 paid a new issue premium of about 25bp, while the 10-year bonds that mature in June 2021 paid a new issue premium of about 20bp — this was tight given the size of the issue.
The expected issue rating if the Cairn acquisition is completed is Ba3 by Moody’s and BB by S&P and Fitch. In the event that the Cairn acquisition is not completed, the expected issue rating is Ba2 by Moody’s and BB by S&P and Fitch.
Vedanta will use part of the proceeds to finance its acquisition of Cairn, which is still subject to approval. If the acquisition does not go ahead, it will use the funds for capital expenditure, to repay debt and for general corporate purposes.
Vedanta last accessed the international bond markets in June 2008 with a dual tranche $1.25 billion offering — also the largest corporate high-yield bond out of Asia at that time.
Vedanta has exposure to diverse commodities such as aluminium, copper, zinc, iron ore and power.
Lonking
Lonking Holdings also crossed the line last week, successfully closing a $350 million five-year non-call-three early Friday morning. The deal priced at a yield of 8.5%, at the tight end of the final 8.5% to 8.75% guidance, and attracted an order book of $775 million from 90 accounts.
Asset managers bought 61%, state funds 15%, insurers 15%, private banks 5% and others 4%. Asian investors bought 47%, US investors bought 33% and European investors bought 20%.
The deal priced despite well-founded concerns from investors about the high level of issuance from Chinese high-yield names. “The deal shows that there is still a market for China high-yield despite concerns of oversupply,” said one source familiar with the deal. “However, the market for PRC industrial names is different from the first quarter — when West China Cement came out — as there is now competing supply within the industrial space,” he added.
The bonds initially traded up to 100.375 in secondary trading, but later slid down to 99.5/99.625 on Friday afternoon.
Lonking makes wheel loaders for the construction industry. Credit Suisse was the sole global coordinator and bookrunner. Standard Chartered was also a joint bookrunner.
This week will be a busy one, as more companies line up to meet investors. Korea South East Power is holding investor presentations in Singapore tomorrow, Hong Kong on Wednesday and London on Thursday. Citi, Goldman Sachs and Morgan Stanley are joint bookrunners.
India’s biggest power generator, NTPC, has mandated Barclays Capital, Citi, Deutsche Bank and Royal Bank of Scotland to arrange a bond investor roadshow in Singapore today, Hong Kong tomorrow and London on Wednesday. The government of India owns 84.5% of NTPC. A 10-year Reg-S dollar benchmark is expected to follow.
Elsewhere, Korean lender Kookmin Bank has mandated BNP Paribas, ING, J.P. Morgan, Royal Bank of Scotland and UBS for its dollar bond issue.
