Tesla raises $1.8 billion in first junk bond offering

Tesla sold $1.8 billion of eight-year unsecured bonds at a yield of 5.30 percent, the company said in a report to the US stock exchange. (Reuters)
Updated 12 August 2017
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Tesla raises $1.8 billion in first junk bond offering

NEW YORK: Bond investors on Friday gave a $1.8 billion (SR6.75 billion) boost to Tesla’s balance sheet by snapping up the electric carmaker’s first foray into the US junk bond market, where yield-hungry investors have raced to lock in relatively higher returns.
Those robust returns, however, have shrunk as a strong reservoir of cash ready to deploy in the riskiest areas of the high-yield fixed income market has pushed them to near their lowest levels in three years. That has given junk-rated issuers such as Elon Musk’s US car company the opportunity to raise cash cheaply.
Tesla sold $1.8 billion of eight-year unsecured bonds at a yield of 5.30 percent, the Palo Alto, California-based company said in a filing with the Securities and Exchange Commission.
The bond was sold at par, according to a source familiar with the transaction, who requested anonymity because the detail was not publicly disclosed.
Tesla initially wanted to sell $1.5 billion worth of debt but enlarged the offering because of overwhelming demand, according to IFR, a Thomson Reuters unit. The yield was slightly higher than the 5.25 percent cited at the initial launch.
Cash proceeds will help finance production of Tesla’s Model 3, which it is banking on to hit the mass-market bullseye and finally help the company turn a profit. Tesla aims to boost production to 500,000 cars next year, about six times its 2016 output.
“It’s a milestone for a company from a relative unknown to what it is today,” said David Knutson, head of credit research at Schroders Investment Management.
The company, founded by Musk in 2003, has plowed revenues back into its businesses, which now include energy storage.
At the launch of the Model 3, with a base price of $35,000, Musk warned that Tesla would face months of “manufacturing hell” as it increases production of the sedan.
The ability of the high-yield sector, which some analysts and investors consider pricey, to absorb debt supply from a first-time issuer such as Tesla suggests its resilience, at least for now.
“I won’t call it a bubble,” said Andrew Feltus, co-head of high yield and bank loans at Amundi Pioneer Asset Management in Boston. “The (market) fundamentals are pretty good.”
While the ability of Tesla to raise so much cash with such a low rating might revive memories of market bubbles such as the dot-com boom, strategists said that analogy did not apply.
“Tesla is not one of these companies,” said Stan Shipley, a strategist at Evercore ISI in New York.


OPEC oil ministers gather to discuss production increase

Updated 19 June 2018
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OPEC oil ministers gather to discuss production increase

  • Analysts expect the group to discuss an increase in production of about 1 million barrels a day
  • The officials were arriving in Vienna ahead of the official meeting Friday

VIENNA: The oil ministers of the OPEC cartel were gathering Tuesday to discuss this week whether to increase production of crude and help limit a rise in global energy prices.
The officials were arriving in Vienna ahead of the official meeting Friday, when they will also confer with Russia, a non-OPEC country that since late 2016 has cooperated with the cartel to limit production.
Analysts expect the group to discuss an increase in production of about 1 million barrels a day, ending the output cut agreed on in 2016.
The cut has since then pushed up the price of crude oil by about 50 percent. The US benchmark in May hit its highest level in three and half years, at $72.35 a barrel.
Upon arriving, the energy minister of the United Arab Emirates, Suhail Al Mazrouei, said: “It’s going to be hopefully a good meeting. We look forward to having this gathering with OPEC and non-OPEC.”
The 14 countries in the Organization of the Petroleum Exporting Countries make more money with higher prices, but are mindful of the fact that more expensive crude can encourage a shift to renewable resources and hurt demand.
“Consumers as well as businesses will be hoping that this week’s OPEC meeting succeeds in keeping a lid on prices, and in so doing calling a halt to a period which has seen a steady rise in fuel costs,” said Michael Hewson, chief market analyst at CMC Markets UK
The rise in the cost of oil has been a key factor in driving up consumer price inflation in major economies like the US and Europe in recent months.
Already US President Donald Trump has called on OPEC to cut production, tweeting in April and again this month that “OPEC is at it again” by allowing oil prices to rise.
Within OPEC, an increase in output will not affect all countries equally. While Saudi Arabia, the cartel’s biggest producer, is seen to be open to a rise in production, other countries cannot afford to do so. Those include Iran and Venezuela, whose industries are stymied either by international sanctions or domestic turmoil. Iran is a fierce regional rival to Saudi Arabia, meaning the OPEC deal could also influence the geopolitics in the Middle East.