Wind Bonds Surge as Investors Bet VimpelCom Buyout to Strengthen Finances
By John Glover and Kate Haywood - Aug 18, 2010 12:44 PM GMT+0200 Wed Aug 18 10:44:59 GMT 2010
Bonds of
Wind Telecomunicazioni SpA soared for a third day as investors bet that a takeover by Russian cellphone operator VimpelCom Ltd. will strengthen Italy’s third-biggest phone company.
VimpelCom is in talks to buy all of Rome-based Wind and the two are ready to sign a letter of intent agreeing terms of the sale, Il Sole 24 Ore reported yesterday. Wind is rated B+ by Standard & Poor’s, four steps below investment grade, and a level lower at Ba3 by Moody’s Investment Service. VimpelCom has no debt and isn’t rated, S&P said.
Wind’s 348 million euros ($447 million) of 12.25 percent so-called pay-in-kind notes rose to 101 cents on the euro, the highest since May 7, from 92 cents on Aug. 11, the day before Russia’s Kommersant newspaper reported the deal, according to HSBC Holdings Plc prices on Bloomberg. The 11.75 percent secured notes due 2017 jumped to 109.5 cents, also a four-month high, from 105 cents before the report.
“The bonds have rallied because investors will be part of a less levered, larger company,” said
Josep Turro, a high-yield analyst at Conduit Capital Markets in London. “The question from here is, will there be a refinancing or not? And at what point in time?”
Naguib Sawiris, the Egyptian billionaire who owns Rome- based Wind, is restructuring debt and selling some of his telecom assets outside Italy. Wind Hellas Telecommunications SA in Athens is on the brink of its second debt reorganization in less than a year, while Sawiris is trying to sell Orascom Telecom Holding SAE, the biggest mobile-phone operator in the Middle East.
VimpelCom plans to buy a majority stake in Orascom, two people familiar with the matter said last week. Sawiris couldn’t be reached for comment.
Wind Risk Falls
Credit default swaps protecting Wind’s bonds fell 93 basis points to 590 since August 11, and are the lowest since May 18, according to data provider CMA. The contracts are used to speculate on a company’s ability to repay debt and a decrease indicates improvement in the perception of credit quality.
A basis point on a credit-default swap protecting 10 million euros ($12.9 million) of debt from default for five years is equivalent to 1,000 euros a year.
“VimpelCom is much less leveraged than Wind and that’s got to be good for the credit,” said
Jonathan Moore, an analyst at Evolution Securities Ltd. in London. “They’ll be part of a much larger, well capitalized entity if the deal goes through.”
Pay-in-kind bonds, or PIKs, allow the issuer to make interest payments with more debt rather than cash. PIK toggle notes, such as Wind’s 12.25 bonds, allow the borrower to switch between paying coupons in cash or with more notes.
To contact the reporters on this story:
John Glover in London at
[email protected];
Kate Haywood in London at
[email protected]
