Sunday, 26 June 2022

Tesla’s priced-for-perfection bonds fall within week of sale

Tesla Model 3

NEW YORK: Tesla Inc bonds slid a week after they were sold, as excitement over Elon Musk’s ambitious roll-out of the Model 3 was tempered amid geopolitical tensions and second thoughts among investors about how little they’re getting paid.

The company’s $1.8 billion (Dh6.61 billion) of 5.3 per cent notes due 2025 slipped below par almost immediately, trading as low as 97.4 cents on the dollar on Friday, according to data compiled by Bloomberg. The eight-year securities had priced a week ago at a record-low yield for a bond of its rating and maturity — a touch higher than initial talk of 5.25 per cent — and Tesla had added $300 million to the offering to meet demand.

Musk had personally pitched investors for Tesla’s debut offering in the junk-bond market, ultimately drawing orders for about double the initial offering. The demand allowed the company to boost the size of the sale even as investors and analysts highlighted Tesla’s lack of profit and record cash burn.

“The way that it’s traded is showing that portions of the market just weren’t long-term holders at that price,” Gershon Distenfeld, director of credit at AllianceBernstein LP, said in an interview. “I own a Tesla, I love the product. But I think investors recognise that 5.3 per cent was probably not the right price.”

Tesla, which is rated well below investment grade, has told investors it needs years to generate spendable cash, Distenfeld said in a Bloomberg TV interview. The bond “should trade more like 7 or 8 per cent,” he said.

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