Posted on 12 Mar 2009
South Korea's POSCO, the world's fourth-largest steel maker, may sell up to $700 million in global bonds next week, in the first regional corporate bond sale to overseas investors this year and a key litmus test of demand for debt from Asia Inc.
POSCO, which plans to boost spending this year by as much as 53 percent to 7.5 trillion won ($5.05 billion), will brief investors from Monday through Wednesday, and a bond sale could follow, said a POSCO spokesman, confirming earlier reports.
A sale won't come cheap, analysts warned.
Spreads for Asian debt remain elevated, and only Asia's top companies, or those owned by governments, can compete against a deluge of debt from more developed economies, with trillions of dollars more on the way.
POSCO also faces declining confidence in the global steel sector and a South Korean won that has tumbled this year to its lowest in 11 years amid concerns about the country's ability to service its foreign debt.
"If this transaction proves successful you can bet that other Asian corporates will try to issue bonds," said Scott Bennett, a fund manager at Aberdeen Asset Management in
"It won't be an easy transaction, and people will be keen on the outcome. Out of this sale you'll be able to draw lessons about how investors view commodity companies, Asian corporates, and investors' appetite for Korean assets," he added.
Sales of bonds in dollars, euros and yen from Asia excluding
The revival follows a collapse of overseas debt sales after the failure of Lehman Brothers in mid-September.
Still, not a single corporate issuer has sold a global bond this year, with sales coming mainly from sovereigns such as
It has not been due to a lack of interest, bankers say. Emerging
The problem has to do mainly with pricing. Emerging market secondary bonds have taken a sharp hit, as overseas investors have deserted riskier investments, meaning issuers will need to provide significant premiums to attract investors.
POSCO's 5.875 percent bonds maturing in 2016 dropped 2 points to 81/86 cents to the dollar for a yield of 9.1 percent on Thursday, and analysts said it could pay around those levels for its five-year bond.
The steel maker's five-year credit default swaps (CDS) widened by 20 basis points to 360, making the cost of protection against default for solidly-rated POSCO 60 basis points more expensive than lower-rated Thailand.
Other factors make a debt sale from POSCO challenging.
Global steel majors, including POSCO, have stepped up supply cutbacks since late last year as demand for everything from autos to machinery tumbles amid a global slowdown
POSCO faces an additional hurdle as the South Korean won has dropped some 30 percent against the dollar in the last six months, making servicing overseas debt more expensive for these issuers.
At the end of 2008, foreign debt maturing in one year totalled $194 billion, against foreign exchange reserves totalling $201.5 billion at the end of February.
Citigroup, Deutsche Bank, Goldman Sachs, HSBC and Merrill Lynch will be the underwriters for the deal.
POSCO is rated A by Standard & Poor's, or the sixth-highest investment grade rating, and one notch above at A1 by Moody's. ($1=1486.5 Won)
