City A.M. Reporter
HeidelbergCement plans to issue more than €1bn (£937m) in bonds, tapping the resurging junk-bond market to reduce its reliance on banks.<br /><br />The world’s fourth-largest cement maker will issue a five-year bond and a seven-year bond, each worth more than €500m, to repay parts of syndicated bank loans, the company said yesterday.<br /><br />While the move was greeted by analysts as a well-timed step in HeidelbergCement’s refinancing efforts, they also pointed to its remaining high burden of debt due in the next two to three years and said the deal may show an overheating bond market.<br /><br />HeidelbergCement, laden with debt from the $16bn takeover of British rival Hanson in 2007, is trying to break out of the stranglehold of creditor banks. “The bond market is quite amenable to such an offering at the moment,” said Jochen Schlachter, a credit analyst at UniCredit. “The company still has considerable refinancing needs in 2011 and 2012, which are giving rating agencies a headache. These bonds will take the edge off upcoming loan maturities.”<br /><br />Analysts at CreditSights cautioned the bond issue was only a small step in HeidelbergCement’s refinancing process. The company, which has €8.7bn of bank debt due in late 2011, “remains saddled with debt, being at the high end of the peer group”, they said.<br /><br />ING credit strategist Jeroen van den Broek said the issue may be a signal the rally in the bond market has gone too far. “Every excessively strong market has the potential to turn on one deal. This might be it,” he said, citing the company’s single-B ratings and the large size of the issue. He said if the deal was a success, it could open the gates for a flood of more bond issuance from risky, low-rated firms.