MISC pulls its bond deal while Kia hangs tight

Malaysia International Shipping falls victim to market volatility and pulls its $750 million 144a bond deal. Investors are now speculating whether Kia will do the same.
Liquid gas carrier Malaysia International Shipping Corporation (MISC) pulled its 10-year 144a $750 million transaction (rated A2) yesterday, against a market backdrop of continued volatility. Meanwhile, market observers are watching closely to see whether Kia MotorsÆ $300 million five-year offering (Baa3/BBB) will prevail against challenging conditions.

MISC yesterday announced in a statement that market volatility and investor skittishness had led the company to withdraw its transaction, managed by Citi and Deutsche Bank. Trading on the New York Stock Exchange has been particularly volatile, with the Dow Jones index starting the day yesterday up 100 points and then ending in negative territory, down 14 points. Further, the yields on 10-year Treasuries have reduced from 5.30% to 5.06% in the last seven to 10 days on the back of renewed concerns over US subprime mortgages triggered by the Bear Stearns situation.

Meanwhile, Dubai Ports, an A-rated government-owned infrastructure credit which recently priced a transaction at 115bp over Treasuries, saw its bonds widen to 125bp over. Other recently executed deals have also widened.

Some market observers say that the MISC deal could have been done in two stages, with a smaller issue executed now and a second, larger transaction done at a later stage. The deal had reportedly built a book of $900 million. Others say: ôMISC is clearly in no hurry to price. It has the flexibility to come back to the market when fundamentals are more favourable.ö

Kia Motors, one of KoreaÆs top car manufacturers, will announce soon whether its offering, managed by Credit Suisse, JPMorgan, Korea Development Bank and UBS will price as announced. Even those who like the credit are worried. ôThereÆs too much volatility. Initial price talks become meaningless as the market widens. ItÆs difficult to get things done across the board.ö

Others feel guidance for Kia, in the 90bp over Libor area, is too tight. Despite a change of ownership stipulation allowing bond holders to redeem the paper should partner Hyundai Motor CompanyÆs stake drop below 51%, some investors feel the deal should be priced north of 100bp.

"On a standalone basis, Kia's credit is considerably weaker than Hyundai (despite equal ratings) and versus other similarly rated companies such as BW, the Singapore-based privately held shipping company," says an investor.

Kia became a consolidated subsidiary of Hyundai in 1999. Unlike Hyundai, the company suffered losses in 2005 and 2006, reportedly due to won appreciation, which ôadversely affected its performance and export earnings,ö according to MoodyÆs. ôKia is much more dependent on exports than Hyundai, and currency moves have caused it to lose substantial amounts of money,ö states a source on the buy-side.

Some investors are simply disillusioned with Korean credit. ôNo Korean issuer is trading tighter than the break, so whereÆs the incentive?ö questioned one investor, before adding: ôThe market is too choppy and they are not paying up. I donÆt think it will go through.ö

Nevertheless, according to sources, the book yesterday was reportedly (albeit just) covered.
¬ Haymarket Media Limited. All rights reserved.
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