Heidelberg to issue bond to cut bank debt

City A.M. Reporter
HeidelbergCement plans to issue more than &euro;1bn (&pound;937m) in bonds, tapping the resurging junk-bond market to reduce its reliance on banks.<br /><br />The world&rsquo;s fourth-largest cement maker will issue a five-year bond and a seven-year bond, each worth more than &euro;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&rsquo;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. &ldquo;The bond market is quite amenable to such an offering at the moment,&rdquo; said Jochen Schlachter, a credit analyst at UniCredit. &ldquo;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.&rdquo;<br /><br />Analysts at CreditSights cautioned the bond issue was only a small step in HeidelbergCement&rsquo;s refinancing process. The company, which has &euro;8.7bn of bank debt due in late 2011, &ldquo;remains saddled with debt, being at the high end of the peer group&rdquo;, 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. &ldquo;Every excessively strong market has the potential to turn on one deal. This might be it,&rdquo; he said, citing the company&rsquo;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.