CII Carbon prices bond amid renewed volatility

The $235 million deal prices at the tight end as some commentators question whether the transaction counts as Asian high-yield.
US-based CII Carbon, a unit of IndiaÆs Rain Calcining Limited (RCL), raised $235 million in bonds on Thursday through a 144A Reg-S eight-year non-call-four transaction generating a final order book of $1.4 billion amid renewed volatility. The proceeds of the funds will be used to repay the bridge loan provided by Citi for RainÆs acquisition of CII Carbon.

The deal closed and priced at the tight end despite a weaker market, with risk aversion staging a comeback following negative news from Citi and reinsurers, and upcoming supply. Investors û already digesting the prospect of Country GardenÆs $1.5 billion deal hitting the markets û saw the pipeline swell as Chinese Property developer Agile announced a $400 million transaction on Friday via HSBC.

Sole bookrunner Citi released guidance in the area of 11.5%, but the transaction, rated B3/ CCC+/ B-, managed to price at par with a yield of 11.125%.

Over 90 accounts participated in the transaction, with 92% of the bonds selling to asset managers and funds, 5% to banks and 3% to insurance companies. A total of 10% of the bonds sold to Asia, 17% to Europe and 73% to the US.

The low participation from Asia reflects the fact that many investors refrained from participating due to the CCC+ rating assigned by Standard and PoorÆs. ôAsian banks, hedge funds and asset managers have guidelines preventing them from investing in paper with this rating,ö says a source.

But one Asia-based investor who bought the bonds stated: ôAlthough the company is highly leveraged (5.5 times), it enjoys a good market position as a top global producer of calcined petroleum coke. ItÆs a deal that makes sense for a high-yield portfolio.ö

The Rain/CII group has approximately $362.7 million of senior indebtedness outstanding, while CII and RCL have outstanding indebtedness of $212 million and $150.7 million respectively.

According to some, the transaction marks the first CCC+ offering into the Asian bond market, although one rival syndicate banker disagrees. He argues that this deal, issued by an American company, should not be classified as an Asian high-yield transaction since its cashflows come from CII Carbon.

Despite Rain Calcining providing the maximum guarantee of up to four times the net worth of the bonds (amounting to $150 million) as permitted by Indian government regulations, bankers argue this is just a smart move by Citi to gain league table credit. The guarantee alone will allow Citi to fulfil Thomson FinancialÆs criteria for eligibility.

But one investor who spoke to FinanceAsia says: ôI think itÆs a quasi-Indian credit. The financing was used by an Indian company to acquire a US company and the debt is supported by both the US and Indian companies. The guarantee solidifies the Indian link to the credit.ö

The presence of RCLÆs senior management during the roadshow also reflects û some say û the fact that this is clearly not a pure US deal.

CII is based in Texas and is the second largest producer of calcined petroleum coke (CPC) in the world. RCL, based in India, is the largest CPC producer in Asia. In July, RCL acquired all the outstanding equity interests of CII through its subsidiary Rain/CII Holdings, creating the worldÆs leading producer of CPC with approximately 13% of global production capacity.

The group sells CPC for the production of aluminium and titanium dioxide, and produces energy - as a by-product of the calcining process û which it sells in the form of steam or electricity.
¬ Haymarket Media Limited. All rights reserved.

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