Noble sets the tone for Asian high-yield bonds

Noble Group attracts an impressive $4 billion in orders and prices at the tight end of guidance in a deal that augurs well for Asia's high-yield borrowers.
Noble Group, a global supply chain manager of agricultural, metals, minerals, ores, and energy products, last Thursday succeeded in raising $500 million in five-year senior notes at the tight end of guidance issued at 8.5%-8.75%. The deal, which priced at par, attracted just under $4 billion in orders with approximately 150 accounts being allocated bonds.

ôThe deal was hot, hot, hot. Everyone bought it,ö says a syndicate banker not connected with the transaction. "In general terms, the deal shows that weaker credits in attractive sectors (like commodities) which price at large enough discounts can generate huge order books and raise large amounts of medium-term debt."

Citi and JPMorgan handled the trade, which bankers hope will pave the way for a resurgence of high-yield issuance in Asia this year. The deal was rated Ba1/BB+ by Moody's and Standard and PoorÆs, but investment grade (BBB-) by Fitch. Moreover, the bonds came with an investment-grade covenant package. As a result, this was generally not viewed as a pure high-yield transaction, but even so, it certainly bodes well for future issuance.

The bonds traded up on Friday to 101, which brought the yield to 8.3%, having priced with a new issue premium of between 50bp and 75bp and coming between 120bp and 150bp back from the companyÆs five-year CDS.

ôSecondary performance points to solid execution,ö says a banker. ôThe company benefitted from bonds outstanding so you have a clear reference point with regards to pricing,ö he added. ôAnd if one views this as an improving credit then Noble is potentially heading towards investment-grade, which presents a big upside to bond investors.ö

Noble announced record revenues of $9.5 billion for the first quarter of 2008, reflecting a 22% increase over the fourth quarter of 2007, while group profits increased by 167% to $355 million from the first quarter of 2007.

While it could be argued that the deal was cheap, most say this isnÆt really an issue. ôWhatÆs important is what the deal means for pure high-yield borrowers coming to market. It sets a positive tone,ö says a source. Another adds: ôItÆs a challenging market; Noble did the right thing not to push the price too hard.ö

If NobleÆs intent was to rebuild its relationship with the fixed-income investor community after the companyÆs previous deal two years ago û sole-led by JPMorgan û then itÆs likely to have succeeded. That deal was upsized at the last minute from $500 million to $700 million, priced at the tight end of guidance and substantially underperformed. This time, the deal was capped at $500 million.

In terms of geography, 34% of the bonds sold to Asia, 20% to Europe, and 46% to the US. Seventy percent of the bonds sold to asset managers, 11% to banks, 17% to insurance and pension funds, and 2% to retail.
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