Mining groups Rio Tinto and Vedanta Resources are set to sell as much as $5 billion in dollar bonds, part of an expected rush of resources firms seeking to raise funds in debt markets.
Companies in the sector are seeking to refinance existing debt, a chunk of it which is tied to acquisitions, and raise capital, as a boom in commodity prices sparks consolidation and lifts profits in the sector, analysts said.
Rio Tinto and Vedanta bond sales would be hot on the heels of Singapore-listed commodities firm Noble Group, which raised $500 million in bonds in May.
Though sentiment is still weak in global credit markets, regional bond spreads have recovered significantly since widening to record spreads in mid-March, encouraging firms to come to the market.
The window of opportunity may not last long either because U.S. interest rates could rise later in the year as the Federal Reserve becomes wary about inflation.
They are used as a guide in setting the basis for bond prices globally so higher U.S. rates could mean bigger payouts by bond sellers.
They are taking advantage of a good market right now, said Warut Promboon, a credit analyst for ING in Singapore.
(Resources companies) will rush in, especially companies with maturing debt in the next two years. The window is closing fast so they have to hurry, he said.
Rio Tinto is offering a five-year dollar bond at around 240 basis points (bps) over Treasuries, and a 10-year tranche at around 250 bps, a source involved in the deal said on Tuesday.
The Australian mining firm is also offering a 20-year tranche at 250-255 bps over Treasuries, said the source, who declined to be identified because he is not authorised to talk to the media about the sale.
Rio could be seeking to raise $3 billion, according to an email to clients from BNP Paribas' analyst Brett Williams.
The mining firm intends to use the proceeds to refinance debt related to its $38 billion purchase of Canadian aluminium producer Alcan last year, market sources say.
Rio is itself the target of an estimated $163 billion bid by BHP Billiton, the world's biggest mining group, though Rio has rejected the offer as too low.
OTHERS SELLING DEBT
Mining firms are benefiting from strong demand for commodities from fast-growing countries such as China and India.
India-focused Vedanta Resources set guidance for a 5.5 year dollar bond at a yield of around 8.25 percent, and a 10 year issue at a yield of 9 percent, a source involved in that deal said on Tuesday.
The London-listed mining firm is seeking to raise up to $2 billion, an investor source briefed on the deal told Reuters on Monday.
Vedanta will likely use the money to refinance debt, analysts said, as well as fund capital spending that is projected by Moody's Investors Service to reach $3.3 billion over the next three to four years.
It may also opt to use some of the money to partly fund the $2.6 billion deal by Vedanta's unit Sterlite Industries to purchase the operating assets of miner Asarco.
Rio and Vedanta are not the only resource-related firms from Asia-Pacific looking to raise money.
South Korean oil refiner GS Caltex also set guidance on Tuesday for a five-year bond sale at 375-390 basis points over Treasuries, a source with knowledge of the plans said.
Thai steel-coil maker G Steel plans to meet investors in Asia and London over the next few weeks as part of a non-deal roadshow, though debt markets have speculated the company will eventually look to sell a bond. G Steel had said in late May it planned to sell up to $300 million in baht and dollar-denominated bonds to refinance debt.
The string of deals comes amid a revival in debt deals from Asia after volumes slumped during a first quarter that had been marked by fears over a global credit crisis.
Earlier this month Indonesia sold $2.2 billion in debt, in the biggest bond offering from an Asian issuer so far this year. (Editing by Neil Fullick)