Hello, and welcome to The Credit Edge, a weekly markets podcast. My name is James Crumbie. I'm a senior editor at Bloomberg. This week, we're very pleased to have on the show Kalied Matuur, who covers credit markets for Bloomberg News in New York. How are you cal.
I'm doing for a while, Jims, Thanks for having me.
We're very excited to get your take on the markets. Thanks very much for joining. We're also delighted to welcome back Mary Ellen Olsen, a credit analyst with Bloomberg Intelligence in Hong Kong. We'll be talking to Mary Ellen a bit later in the show about Vedanta, an Indian company that's been running into trouble with a ton of dollar debt. So do stay with us, But first, Khalid Matuur with Bloomberg News, you've been all over the corporate bond story.
This month was the busiest September ever for core for bond sales, with more than one hundred and ten billion dollars sold in the first week. We did expect a bit of a rush. September is always busy as investors' return from vacation with money to spend, and issuers usually look to take advantage of that. But why are they moving so fast now? What's the story?
Cal Well? As you put it, James, usually September is a very busy time, busy month for issues. And the reason they're coming now is because if you think about it, if you're a CFO of a company, for instance, you have your borrowing needs for the year, you're looking at the issues calendar, and really after September things really start to slow down. You know, October people are starting to report their earnings and usually around that time companies don't
sell debt. So really September is that really good window for you to really take your business.
So later in the month, I mean there's going to be some earnings blackouts because the FED coming up. Does that mean that companies have to do it before those things happen?
Absolutely, and that's what they've been trying to do. We've seen a lot of big companies, not just in the US but globally really take advantage of this window. You know, last week we saw Philip Morris come to the market.
Just this week two Mobile raised two billion. You know, we've seen big banks two come to the market and just there the day we had Bank of America come to the market as well, So it's really everyone coming in and saying, you know what, this is a good and a good window to issue that, and you know, you might as well take care of the opportunity of the opportunity while it's still there.
Are these deals mostly raising money for refinancing or for new projects or what are they spending that money.
On, right, right, So it's mostly refinancing. And what's really happening here. GM says borrowing costs have gone up quite a bit. If we just step back and look at March last year, just when FED was starting to high rate the borrowing costs, if you look at the yield on an average bond, it was it was around three three three percent, and now just looked at this morning, it's a it's nearly six percent. You're looking at five point eight percent. So borrowing costs are almost doubled here.
And so if you're a company, you're thinking you really want to issue deb if you really need to write, and so it really boils down to you know, whether you need to refinance, whether you need to push out maturity, and then for the other reasons, the usually company borrow or you can wait you know, you can really wait until borrowing costs go down and then you have a much better window to issue.
So just to be clear, on that yield, you're talking about six percent. That's for investment grade companies.
Right, absolutely, that's for you know, what we call investment grade companies, which is really just you know, these safer companies that are less likely to default and so they get us safer higher rating. And so we've seen a lot of those companies come to the market. But also the high yield market has been very, very very active.
I was just looking at the Bloomberg data this morning, and we've had seven billion just this week, the last three days actually, and we have another four billion coming in and so we're having I mean, this market has not been this busys in mid May. So that just gives you a picture of like everyone is trying to come and everyone is really trying to take advantage of this window.
And the yields on that stuff. I mean I'm looking at it, it's around eight and a half percent or something. And again, you know, like investment grade is doubled over the last year, so it's a lot more expensive. Why are they paying.
Up the companies the companies.
You mean, yeah, I mean, so if it's so expensive, why don't they just wait it out?
I mean, if you need to push out maturities and then gyms, you really don't have any other option, right, you have to really take care of that business. You really have to issue that And going back to what I was saying earlier, this companies are being very, very very strategic about their borrowing plans, right, you really need to come to the market when if you really need to, you know, if you go down to high yield. You know, we're starting to see the LBO market open up a
little bit. We're starting to see you know, more deals come to the market, and so they're issuing for a different.
Reason on So just on the refinancing side, I mean, we have talked a lot about there is a kind of a wall of maturities approaching investment grade and high yield companies. You know that it really does get quite high in say twenty twenty five, twenty twenty six, So this a lot of decisues. What you're saying is that they are using this money to pay down some of that maturity to sort of iron out that hump.
Absolutely, I mean I have to say, this company is for the most but a lot of companies did a good job pushing out maturities, right. You know, we had this long period of easy, easy monetary policies and rids were quite low, and a lot of companies took advantage of that and pushed out their maturity walls. But still their companies that still need to do this, and those are the companies that we're seeing come to the market now.
The deals that we're seeing, are they going well in terms of demand? Are we seeing investors really keen to snap this debt up?
Right? So if I can focus a bit and just look at IG for a minute here, kid, you know, it's you know, the demand there is quite strong. It's really quite strong. A good example that comes to mind. We had this utility company, Sierra Pacific come to the market yesterday, JYMS. This company was looking to raise four hundred million, right, and because it was issuing on the longer end of things, so this bonce mature entire years, it got a huge, huge demand. We're talking about three
point four billion for a four hundred million deal. So that just tells you how much investors are looking for these bonds, and especially the longer deted bonds because that's where the yield.
Is, so the long end. You mentioned that that's interesting. What are we seeing in terms of issuans. There are companies locking in these high rates for the long term right now.
It's actually quite the opposite on the most part. So because because rates have gone up so much and borrowing costs, you know, are high, a lot of companies are choosing to issue bonds that mature and relatively very short periods of time. So we're talking two years, we're talking three years, five years, some ten years. But you know, if you just look at the deals that have come to the market from last week, a lot of these deals are
shorter dated bonds. Now. Investors, on the other hand, are looking for longer dated bonds, right you know, people are just becoming more optimistic that the Fed is cutting rates and the economy. You know, people expected, you know, a very hard recession here and now we are starting to
talk about our soft landing. Some people have been talking about we might not have a recession, right and so for investors, they're becoming more optimistic about the outlook and for them, longer debatd bondes are becoming more attractive, and so they're looking for a lot more of these longer, deaded bones.
So from an issue perspective, are they sitting there thinking, well, hang on a minute, we don't want a lot these high rates in for a long time, and we think they're going to come down, so it's going to become cheaper for us to issue at some point Soon's.
That's exactly what's happening. You know, in my report, I've talked to CFOs, I've talked to investors, and that's really the thinking here. If you're a CFO, you're thinking, you know, I'm going to issue two years, three years, you know, hopefully around you know, after twenty four, twenty five, you know, we're probably going to have a totally different landscape here and maybe that would be a good time to go along. So for now, you know, issue short bones and just wait for the third to blink.
Because on the one hand, you know this is higher for longer narrative seems to be really taking hope. Typically on the investors side, I mean, they're keen to see these rates stay up. But then with saying that, on the borrower side on from Corporate America, they're not buying it. They're betting against it in some ways.
That's what's happening. That's what's happening. It's all of a conundrum if you're an investor, if you're if you're a borrower, you're thinking, well, I don't want to get locked in this really high rates, and so I'm going to issue shot. And then you're looking at the market. There's such a huge demand for the long dated bonds, and so we've started to see a little bit of issuers try to
issue long at dated bonds. A good example was the Sierra Pacific I just gave you because there's really demand for it, and you can bring down the price when you're issuing this boonce.
Let's talk about the price. So for the market, I mean, whenever there's a lot of supply, it tends to hurt the price. And we're seeing that a little bit on the high yield side right now that there is a lot of issuanes as you said, and the spreads are starting to widen. Now are we saying the same thing an investment grade is you know, there's all this supplies, it's starting to hit the price and it's starting to push spreads wider.
We've seen a few cases where deals struggle a little bit, but Jim's for the most part, these deals are doing really well. I mean, a a good indicator to look at it is what we call the new issue concessions, which is really just the extra yield premium that companies paid to sell this bonds. It's really it's really not that bad. You know, year to date, on average, it's about eight points something basis points. You know, if you look at the whole of twenty twenty two, it was
I think about thir team basis points. So that just tells you that the demand is there and actually the stills are not doing bad at all.
Also interesting in your reporting, I mean you say that, you know, we expect a big September for issuance. We expect let's say, one hundred and twenty billion, which is, you know, a decent amount for a month, but if we look back in history, it's still less than you know, I mean, last year was a bit slow, but it's still less than the average over quite a long period. So you know, essentially, you know, it looks like a
big month, but it may not end up being. Then on top of that, we've got all this what we call liability management where bond bonds are taken out by companies, you know, they're buying them back, either in the open market or through tender offers. Let me flip the question then, is there enough to go around? Demand seems to be fairly steady, but supply is dropping. Shouldn't that make spreads even tighter?
You would you would think that, you would think that. And to your point, supply is expected to you know, to be low this year just because of what we've talked about. Borrowing costs are just very prohibitive for a lot of issues, and so people expect, you know, supply to sort of underwhelm a little bit here. But spreads are you know, held quite quite quite fairly well, if you think about it. I mean, we saw them like kind of jump a bit in you know, Elia this
year when we had the bunking crisis. But they're fairly doing well. They're fairly you know, range bound.
So before we talked to Mary ellen Olsen about Asia, tell us cal what else is on your radar. You've also been doing some great work on the ESG debt market, which has suffered a bit of a political backlash in the US. How's that market? Doing this year. Are we seeing a bit of a comeback there?
We've seen quite a huge rebound this year, James. I mean, just if we just focus on green bones, which is the largest part of sustainable debt market, you know, it's expected to hit a record this year. I mean, the most we've seen was in twenty twenty one, we had around five hundred and twelve billion. This year we might go past six hundred billion. And so we've seen really quite a huge rebound globally for this kind of bonds. What's interesting, though, is to your point, US is kind
of struggling a little bit here. We've seen quite a bit of pushbuck you know, you know a lot of people pushing back just on ESG strategy, you know, and so issues are starting to be more careful, right and so in the US they're issuing less of this once. But for the rest of the world, it's it's a big party.
Great stuff. Calp Matua from Bloomberg News, thank you so much for joining us.
Thank you.
You can read all Kyl's scoops on the Bloomberg Terminal and of course at Bloomberg dot com. Right now. We're delighted to welcome back on the credit edge. Mary Ellen Olsen, who covers commodities for Bloomberg Intelligence based in Hong Kong. How's it going, Mary Ellen? Staying dry over there?
Ah, well, it's going well, but I can't say I'm staying dry. It's been raining here for about the past month, I think, and it looks like it's going to continue to reign for the next week. So other than that, yes, good, thanks for having me.
Great to see you again. And I know you cover a lot of different countries and companies, but I wanted to focus this time on India in particular a company called Vedanta. It's a junk rated Indian mining company that faces repayment of a record two billion dollars in debt next year. Some of those bonds are trading at distress levels and we've talked about that company quite a few times on this show already. But what's the latest there,
Mary Ellen. I mean, you know, a lot of companies have a lot of debt due over the next few years. Why is this one in particular coming under so much pressure right now?
I think that this one is different because it has so much debt do in such a short short period of time. So through twenty twenty six, it has about three point eight billion in dollar bonds that will fall due and right now we're looking at the next repayment
to happen in January twenty twenty four. So the build up has been you know, how how are they going to make the payment on this one billion dollar of debt that's outstanding, And heading into this week, we actually knew that the company was looking at raising new debt, potentially backed by royalties on brand fees. It was also looking at a potential debt ext extension or a debt restructuring initiative, and it was also holding investor meetings in
Hong Kong and Singapore. So today I did wake up to some new news which I was hoping I could fill you in on.
So that's great. There is some progress, but I mean since we last talked about them in let's say March, I mean it was quite a long time ago we started talking about Verdane. But how much progress have they actually made?
They have made progress. They had some dollar bonds that were due earlier this year which they have repaid, and they've also you know, embarked or continued on an overall debt restriction debt reduction strategy for the holding company. But a lot of those initiatives have only kicked the can really down the road, so they haven't really you know, mounted the overall liquidity or the refinancing hurdles in any one particular action since we last.
Spoke and we talked a little bit about debt reduction. But how are they funding that?
They Well, they have funded it through a variety of means. Most recently, they initiated a stake sale from their operating company, Vedanta Limited. They sold about a four percent stake and raised five hundred million, and that that occurred in August, and that brought in some money to the coffers, which I think people were looking to to provide liquidity for this upcoming debt payment in January.
Okay, so they are getting some relief, but I mean, are they selling off assets that are crucial to their operating Are they selling off the crown jewels at this point?
Well, they have said interestingly that the chairman has said that they would be looking at potentially creating some pure play investment silos from some of its divisions, which which could happen through the oil and Gas division, also the aluminum division and potentially some a steel company's sale. But I don't think that those things are necessarily going to
be happening very quickly. You know, asset sales do take a while, and these are the at least the aluminum and the oil and Gas division are some of the bigger divisions they account I think for the aluminum division is about fifteen percent of EBDEL while the oil and Gas division is closer to around twenty percent. So they're pretty big companies, and you know, they're in commodity industry and they make money, but it takes a while to
sell the asset. So I think that it really did need to look at some other alternatives to bring money in to bridge the liquidity gap, so it could have some breathing room in order to affect these asset sales perhaps later down the road.
You mentioned the meeting investors right now, the meeting them we're in Hong Kong, Spole, other parts of Asia. But how do you think the investors will be reacting right now given that the bonds are trading at distress levels.
Well, what came out from the news today, and I haven't spoken to any investors who have actually sat in on meetings with the companies, yet they only invited specific investors from what I've heard, But what's come out in the news is a couple of things which I think are interesting to hear. The first one is that they are looking at raising new loans, potentially packed by this
bran fee, and they are looking at debt extensions. And they're looking at extending the twenty twenty four and twenty five maturities and that's about three point two of the total debt outstanding of three point eight, so they're looking at a significant debt extension. And they're also looking at some other liability management exercises which could also extend their debt maturity profile and improve their overall liquidity. But the news itself actually did take me by surprise, and let
me share with you why. I think in the first case, they had wrapped up the January twenty four bonds potentially in the debt extension, and I think that that will take those note holders by surprise because they were looking towards, you know, hopefully getting some new money into pay to pay them off in January. So that was one of the key takeaways from what the news that came out today and The other major news that or takeaway that I got was that the company actually is looking towards
a debt extension. And it's interesting because Venantez always really made it a point that it has never defaulted on its debt. And you know, when you look at when you think of a debt extension, that can actually lead to a selective default designation by the rating agencies. And so this idea that they were doing this extension, and it did surprise me, but it does seem as though it could be a palatable solution for the company.
Interesting you mentioned the raising agency. I did want to ask you about that. Man, how are they reacting generally? They are they putting pressure on the on the ratings that they're going to downgrade them.
Well, the only SMP rates Vedanta at the moment, and they actually have the company at a B with a negative outlook. And I think that, you know, one of the key things that they're factoring into their credit rating at the moment is the company's commitment to make good on its dead outstanding. And I believe that one of the reasons why this kind of debt extension could be
palatable to Vedanta. It could be a solution for them is if they're able to structure the transaction so that that doesn't actually result in a selective default, and that that could be possible if it does a concurrent fundraising as well as structures the transactions so that the existing bondholders get more value out of the new transaction. So I think that's that could be a road that could
be interesting for them to pursue. And and you know, so it's kind of a different take on it than what I was thinking previously.
Do the raisings really massive of Adentro at this point?
Not necessarily that the everybody knows that the company is under extreme liquidity pressure, of course, but I think to one extent, you know, if it does get down to an SD again, it goes against this mantra that the company has put forth about making good on its debt repayments. And I think it also could impact its borrowing costs if it were to default or get a lower rating than a bus, or its ability to secure long ten
or debt. So I think, you know, it does still have an impact, you know, at least if nothing else, for the image on a company.
So why is long term capital so important for a company like Vedanta.
I think at the moment it's it's important because they're in such an expansion mode. They are trying to you know, continue to expand their capacity and these are expensive, you know, capital intensive projects, which are you know, better financed over a longer period of time than a short period of time.
And it also it extends their access to capital to a certain extent too, because if all your capital is bunched up at the front end of your you know, over the next couple of years, it creates some liquidity pressure as they're experiencing now.
On the other hand, commodity prices are slipping. How's that affecting the DANCA generally.
Well, if you just look at the consensus estimate for Vedanta and coming up for the fiscal twenty four and fiscal twenty five, they actually look okay. Some of the commodity prices, yes, they've come off. They've also had some capacity expansion that could help them out next year. So in general, I think the consensus view is that the actual operating company, which is Vedanta Limited, is actually a good asset. They have good assets and it has value.
But really the issue for the company as a whole is the level of debt that it has and it's short term nature.
So if you had to make a bet right now based on what you know, do you think they'll pull through?
I think that their potential to pull through will definitely be improved if they can do this debt extension because it will buy them, you know, some time. If they extend the maturity of some of the existing bonds by three years, they do have time to you know, potentially make some asset sales, which could reduce the refinancing risk.
If they bring in some additional monies, they could lower potentially the cost that they're encourring to take on additional debt, and it could increase their access to bank capital or other forms of fundraising. So I think that on the one hand, why the bondholders probably it won't like to see an extension. It could be something that could help them ultimately create more value down the road.
But given where the bondes are trading, the bonds are trading and distress as we discussed, does that mean, you know, if we think that they are going to pull through, that they could make it o their opportunities there for the brave.
Yes, I think it's hard at the moment to understand what that opportunity is though, because there's not a lot of information out there about how any sort of extension would work. Essentially, again, to avoid I think going into a selective default kind of situation with an extension, they have to you know, create some value over the original offer to bondholders. So I think that that would have to be factored in and would be a consideration when
bondholders consider the extension. But again the shorter data bondholders which are treating at much higher levels in the in the late eighties, probably we're looking more towards a more immediate payoff from you know, near term fundraising.
So the next thing to watch is what whether they can get this extension done, how the investors reacted, what's the calendar look like for Verdanza, what's on your immediate radar?
Probably the the it will take a couple of months to figure out what's going to happen in terms of this liability management exercise. Certainly it will need to get approval for the extension from from the bondholders, and again that you know that will depend on where you are in the maturity curve and what you feel about having an extended exposure to Vedanta through twenty twent twenty seven, and I think that is a relevant point because the
company in the past has been aggressive. They've been aggressive and making new acquisitions, especially debt funded acquisitions, so you know that could be an issue for some of the existing bondholders. But really the drop dead date is by the end of the year to get some more fundraising in in order to avert some additional rating pressure from SMP.
They've asked the company to raise at least six hundred million by the end of twenty three and beyond that you have the boundary payment for a billion which comes in towards the end of January twenty fourth. So those are some of the key issues to watch it. In the meantime, I suspect they'll be negotiating with investors and just so.
We know the importance of this in the region, Mary Ellen, what's the scale? How important is this company? You know, we've had a Danny blow up this year, We've had all the real life state issues in China. Is this just another sign of distress spreading through the Asia credit markets as rates stay high and the economy start to slow down.
I think you the Danta is probably a little bit more unique. You know, it is caught up I think in the higher rates and the very limited access to capital. I think that it's been, uh, it's been harder road for them because of the current environment in the in the credit markets just to get funding. But this liquidity issue has been ongoing for a while because they're you know, for a long time they've had a very complex corporate
structure and they've been over leveraged. So in that regard, it's you know, it's just progression along the same road for the past you know, year and a half terms and of how they're going to meet their their payment. But what's unusual about the company in terms of its peer group is that it does have a lot of dead outstanding compared to most of the companies that I cover.
So it still has about four billion, and that's one of the largest company that I cover that's not a state backed then today, thank.
You very much Mary Ellen Olson of Bloomberg Intelligence. You can read all her great analysis on the Bloomberg Terminal. Do check it out and hope to see you back on the show soon. Mary Ellen, thanks a lot, and thanks again to Kalibmetuur from Bloomberg News. Read all of his great credit scoops on the terminal and at Bloomberg dot com, and please do subscribe wherever you get your podcasts.
We're on Apple, Google and Spotify. Give us a review, tell your friends, or email me directly at jcrumby eight at Bloomberg dot net. That's Jay for James c r O M B I E as in my surname and the number eight at Bloomberg dot net. I'm James Crombie. It's been a pleasure having you join us again next week on the Credit Ledge