Vedanta taps high-yield investors for $1.25 billion

Vedanta and GS Caltex bring deals that show the debt markets are slowly coming back to life.
Vedanta Resources finalised the pricing on a $1.25 billion bond sale late last night û the largest-ever bond offer by an Indian corporate and the biggest high-yield offer by an Asian corporate.

The Indian mining company, which is headquartered and listed in London, raised the money in two tranches û one for $500 million to be repaid in five-and-a-half years and one for $750 million to be paid back in 10 years. The two tranches are rated a single notch below investment grade by Moody's and Fitch, and two below by Standard & Poor's, and are priced at par to pay investors an 8.75% yield for the bonds due in 2014 and 9.5% for those due in 2018. That represents a spread of 522bp over US Treasuries for the 2014s and 541bp for the 2018s.

Vedanta's deal comes after several other Asian high-yield issuers have faltered recently. Truba Alam, an Indonesian construction and energy contractor, and Mongolia's Trade and Development Bank have both pulled deals this year and others have been postponed amid fears of runaway inflation, a weakened financial system and slow economic growth.

This mood of caution has made it difficult for companies to raise funding in the debt capital markets, with lower rated issuers worst hit. Bond sales in Asia this year, outside of Japan and Australia, are down by more than 50% compared to the first half of 2007 but debt bankers say that the mood is now improving and investors in the US are starting to look at deals down the credit curve again.

But if there is a high-yield credit in Asia that could raise money in this market, it is Vedanta û it hits all the right buttons: it's an Indian credit, a commodities play and is well-known in the US. The company and its bankers marketed the deal to investors in Los Angeles, New York and Boston, as well as to their counterparts in Asia and Europe, and, in the end, 150 accounts placed orders totalling $1.8 billion. Almost three-quarters of the accounts were based in the US, which is typical of the post-credit crunch market. Most of the buyers in Asia are proprietary trading desks and hedge funds, so issuers that want to access long-only, real-money funds need to go to the US under the SEC's Rule 144A û an exemption that allows issuers to sell to big institutional investors.

As a result, 87% of the allocation going to asset managers, 7% to insurers and just 6% to banks. Despite Vedanta's attractions as a credit, the final size of the deal was down-scaled from early talk of $2 billion.

JPMorgan and Morgan Stanley acted as global coordinators, with Barclays, Citi and Deutsche Bank joining them as bookrunners. The notes are listed in Singapore.

GS Caltex also priced a deal last night û a $300 million five-year bond offer, rated a couple of notches above investment grade. The notes are printed with a 7.25% coupon and priced at 390bp over US Treasuries.

The bonds were sold to 52 accounts, 42% of which were qualified institutional buyers in the US, 40% were investors in Asia and 18% were in Europe. By investor type, 38% were asset managers, 24% banks, 25% insurers or pension funds and 13% retail and other accounts. The bookrunners were Barclays Capital, Citi, Goldman Sachs and Merrill Lynch.
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