Uranium miner Paladin Energy Ltd (ASX: PDN) jumped to a three-week high after it pulled off what Australia's third largest iron ore producer could not.
Paladin said today that it sold $US50 million in convertible bonds to sovereign wealth fund, China Investment Corporation (CIC), and that help send the stock racing 2.6% higher to 39.5 cents.
The bond sale comes a week after Fortescue Metals Group Limited (ASX: FMG) failed to sell $US2.5 billion in bonds to help retire debt due to questions about its credit worthiness as iron ore prices collapsed.
There are two important consequences we can glean from this that I'll talk about this later.
Coming back to Paladin, this is actually the second tranche of bonds that Paladin has managed to sell this year. Paladin raised $US100 million from professional and sophisticated investors last month at an interest (or coupon) rate of 7% with the bonds maturing in 2020.
CIC's interest is not surprising. As I reported a week ago, China is restarting the construction of new nuclear power plants after these plans were shelved following the Fukushima disaster.
About $US100 million of the $US150 million raised will be used to repurchase $US300 million in convertible bonds that mature in November this year.
While Paladin will be paying more in interest as the maturing bonds have a coupon of 3.625%, it is still a good outcome given the risk profile of the small cap uranium miner.
BHP Billiton Limited (ASX: BHP) is also looking to raise cash through an Australian dollar bond offering. Fairfax reported that it could issue $500 million to $1 billion at a 3.25% coupon, which would make this the cheapest bond offering in the country.
BHP is in a totally different class to Paladin, but what this says to me is that yield-hungry income investors are happy to lend money to companies that are facing challenging outlooks as long as the business is seen to be sustainable in the current down cycle.
The fact is investors have already gotten their fill on debt securities issued by the big banks and are hungry to diversify into other sectors.
This has long been the issue with the Australian credit market, which at times only seems to be serviced by bank bonds and hybrids.
I suspect we will be seeing more bond issues from outside the financial sector, and even among small caps.
Already personal and household goods supplier McPherson's Ltd (ASX: MCP) is paving the way with a $60 million corporate bond offering that was announced last Friday.
The second and more significant takeaway is for equity investors to be wary of where credit investors fear to tread – by that I mean to be cautious about investing in a company that cannot attract credit investors.
This is because credit investors are a different breed to equity investors. The former is far more focused on analysing the downside to limit risk while share investors tend to concentrate on the upside or how much money they can make.
Fortescue may be reassuring investors that it is under no debt pressure, but the fact that credit investors are willing to lend money to a $650 million market cap uranium miner and not a $6.2 billion iron ore producer says something else altogether.
