Melco likely to cap 8-year bond yields at 10.5 percent

08:57, May 12, 2010      

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Casino operator Melco Crown Entertainment has indicated pricing terms for a $600 million bond sale, a source said on Tuesday, the first sign of confidence that regional credit markets are overcoming jitters about the debt crisis in Europe.

Fears that Greece's sovereign debt crisis could spill over into other parts of Europe had made issuers cautious in Asia, prompting some of them to delay their offerings.

Melco, a joint venture between Hong Kong-listed Melco International Development Ltd and Australia's Crown Ltd, indicated on Tuesday that its planned eight-year bonds would be priced to yield 10.5 percent.

The bonds will not be callable for the first four years, a source close to the deal said. Pricing terms are seen likely to be finalized this week.

The move followed the unveiling of a $1 trillion emergency package to stabilize the eurozone, which unleashed a spectacular rally in global asset markets and a revival of risk appetite.

Melco's price indication comes immediately on completion of investor presentations on Monday - unlike other borrowers, who have not launched offerings even after road shows and a sign that capital markets had now become receptive.

"They would like to be first issuer out there after the market showed signs of stability compared to last week. Once the market has become more stable, more issuers will come out," said a Hong Kong-based trader.

Both China Oriental and Korea Exchange Bank met investors in the past few weeks but are yet to make a formal bond offering.

Credit markets in the region warmed immediately to Monday's announcement of the eurozone rescue package with the Asia ex-Japan iTraxx investment-grade index narrowing more than 40 basis points (bps) from Friday's 10-month high of 150 bps.

"We'll get some of those that have been delayed. We'll get them back," said Pierre Faddoul, credit analyst at Aberdeen Asset Management in Singapore of the planned debt issues.

Last Friday, China's underground mall developer Renhe Commercial deferred the pricing of its five-year dollar bonds, citing poor market conditions with markets worried that Greece's debt crisis could become contagious.

Aside from Renhe, Indian steelmaker Essar Steel also put a planned issue on hold last week.

Hong Kong-based consumer goods exporter Li & Fung, an investment grade issuer, was able to sell $400 million of 10-year bonds on Thursday, but they sank at their Asian debut in the secondary market the next day as global markets sank on euro worries.

Faddoul expects Renhe to price its debt in coming sessions but adds that this is not the end to the market's worries.

"I won't say that risk aversion is off the table, but certainly a lot of uncertainty and fears have been erased now, thanks to a mega package from the European government. Risk appetite is much better than last week."

Investment-starved Asia depends on investors from other regions to bridge its funding gap and hence any crisis in other parts of the world is a cause for concerns even if this has little to do with the region's fundamentals.

"We think Asian corporates and sovereigns enter a potentially severe sovereign crisis from a relatively strong position this time and can perform well against global peers," said Viktor Hjort, credit analyst with Morgan Stanley in a note.

"The key risk facing Asian credit now is contagion through drying funding markets. This makes funding access key," it said.

Source: China Daily


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