Friday, February 27, 2009

Asia Aluminum Bondholders to Reject Buyback Offer, Analyst Says

Investors in Asia Aluminum Holdings Ltd.’s 8 percent bonds agreed to reject the company’s offer to buy back the notes at about a quarter of face value, said an analyst who joined a conference call on the matter.

“All of the participants agreed not to tender” their holdings at the offer price, analyst Warut Promboon said in a note to clients today, without naming investors who were on the call. While a “successful tender will shut the door for the Chinese high-yield market, a fight by investors will warn other issuers not to follow suit,” he said.

Aberdeen Asset Management Plc joined emerging market trade association EMTA to host the call yesterday, according to Esther Chan, a London-based emerging market manager with Aberdeen. The goal was a united response to Hong Kong-based Asia Aluminum’s “bondholder unfriendly” offer that would keep Asia’s high- yield bond market “viable,” she said in an interview.

Officials at Asia Aluminum didn’t immediately return calls seeking comment today.

Standard & Poor’s cut Asia Aluminum’s credit rating by five grades to CC on Feb. 16 after the region’s biggest maker of extruded aluminum said bondholders have until May 18 to accept its offer of 27.5 cents on the dollar for the $450 million in 8 percent notes due 2011. The buyback is part of a restructure that’s “crucial” to keep the company operating, it said.

Chinese prices for aluminum slumped 41 percent in the past year as the global recession cut demand for the metal from builders and carmakers.

“I believe a failure to tender at 27.5 cents will bring in a default which, in my view, could draw recovery of not more than 20 cents,” Promboon said today. Since the notes are being quoted by traders at about 15 cents, “a 7.5 price point loss could be worth the fight for the restructuring of Asia Aluminum or a better concession price.”

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