LIVE TV
ZEE Business
ZEE BUSINESS
हिंदी में पढ़ें  हिंदी में पढ़ें
Live TV
Live TV
  • Home
  • Budget 2021
  • Personal Finance
    • PPF
    • Mutual Funds
    • Income tax
    • EPFO
    • Income Tax Calculator
    • Personal Loan Calculator
    • Car Loan Calculator
    • Home Loan Calculator
    • SIP calculator
    • SWP Calculator
    • MF Returns Calculator
    • Lumpsum Calculator
  • India
    • Companies
    • Property
    • Startups
    • Uidai
  • Economy
    • Aviation
  • Tech
    • Mobiles
    • Apps
  • Auto
    • Cars
    • Bikes
  • Markets
    • Commodities
    • Currency
  • Jobs
  • Indian Railways
  • World
    • Economy
    • Politics
    • Markets
  • videos
  • photos
  • Authors
  • More ...
    • VIDEOS
    • PHOTOS
Read in App
Business News » World News

Tesla seeks $1.5 billion junk bond issue to fund Model 3 production

  • Twitter
  • Facebook
  • Linkedin
  • whatapp
  • View in App
Updated: Tue, Aug 08, 2017
09:39 am
Reuters

Tesla Inc said on Monday it would raise about $1.5 billion through its first-ever offering of junk bonds as the U.S. luxury electric car maker seeks fresh sources of cash to ramp up production of its new Model 3 sedan.

The move to issue junk bonds - lower-quality investments that offer higher yields - represents a bet by Tesla Chief Executive Elon Musk that bond investors will be as hungry as stock investors to back the company on expectations that its Model 3 will be a hit.

Tesla shares are up 67 percent this year, pushing the company`s market value to about $60 billion, above that of top U.S. automakers General Motors Co and Ford Motor Co, even though Tesla has yet to make an annual profit.

"Bond investors, who typically don`t love companies that don`t make money, will be far more forgiving when it comes to Tesla," said bond expert Robbie Goffin, managing director of FTI Consulting, citing the company`s stellar stock market value.

Tesla was to start pitching potential investors on Monday, IFR reported, citing lead bankers on the deal.

So far, Tesla has been raising money to pay its bills with a combination of equity offerings and convertible bonds, which eventually convert into shares. In March, the company raised $1.4 billion through a convertible debt offering.

Following the announcement, Standard & Poor`s reaffirmed its negative outlook for the automaker and assigned a "B-" rating for the bond issue - deep into junk credit territory. S&P also maintained its "B-" long-term corporate credit rating on Tesla.

"We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns," S&P said in a statement on the bonds.

Moody`s assigned a junk "B3" rating to the bond issue and said the company`s rating outlook was stable.

The rating agency said the overall company`s "B2" rating was supported by the fact that if Tesla ends up in serious financial trouble, its brand name, products and physical assets would be of "considerable value" to other automakers.

The automaker`s debt load increased significantly last year when it bought solar panel maker SolarCity.

CFRA equity analyst Efraim Levy said the bonds provide Tesla with funds "at least into mid-2018."

"There is a risk they could still run out of money," he said. "Then you’d go back to the equity markets and hope it’s not too late" to raise more money.BURNING CASH

The latest effective yield on single-B rated bonds maturing in seven to eight years, the class for a Tesla issue, is around 5.5 percent, according to Bank of America/Merrill Lynch Fixed Income Index data.

Tesla’s bond will price later this week after several days of meetings with credit investors, who will weigh factors including the absence of a borrowing history, its lack of profit and its high cash-burn rate against its growth potential and its attractiveness as an environmentally friendly “green” issuer.

Ultimately, the depth of investor interest will determine the bond`s interest rate.

Tesla is counting on the Model 3, its least pricey car, to become a profitable, high-volume manufacturer of electric cars.

Tesla said last week that it had 455,000 net pre-orders for the Model 3, which has a $35,000 base price, and that the sedan was averaging 1,800 reservations per day since it launched late last month.

At the launch, Musk, however, warned that Tesla would face months of "manufacturing hell" as it increases production of the sedan.

Tesla had over $3 billion in cash on hand at the end of the June quarter, compared with $4 billion on March 31.

The company has said it expects capital expenditures of $2 billion in the second half of this year to boost production at its Fremont, California assembly plant and a battery plant in Reno, Nevada.

Tesla`s cash burn has prompted short-sellers like Greenlight Capital`s David Einhorn to bet against the Palo Alto, California company.

Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and RBC are the book-runners on the bond offering, IFR reported.

Shares of Tesla closed down 0.5 percent at $355.17 on Monday.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)

Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.

TAGS:

LATEST NEWS

Upstox customers alert! Very important security breach message for you from your broking firm

CBSE Board Exam 2021 Latest News: Class 10, 12 students alert! Controller Dr. Sanyam Bhardwaj says this

FDI Limit in Pension Sector: Modi government may do this soon - All you need to know

Mentor Connect: Amazon India launches mentor programme for startups, emerging brands

Vakeel Saab Collection: Blockbuster! Pawan Kalyan comeback movie sets box office on fire!

Lockdown in Delhi? CM Arvind Kejriwal confirms this after review meeting

MASSIVE! Top 10 best-selling smartphones: Apple grabs 6 places - These 3 iPhones contribute to 71% sales in Jan 2021

Amazing investment strategy to enjoy life after retirement! This is the right approach to achieve solid financial stability

Vakeel Saab Review: What Superstar Mahesh Babu said for Power Star Pawan Kalyan blockbuster movie

Air Bubble agreement: Finalised! Travel between India, Sri Lanka to become easier - Here is how

  • India News
  • World News
  • Companies News
  • Market News
  • Personal Finance News
  • Technology News
  • Automobile News
  • Small Business News
  • Income Tax Calculator
  • Live TV
  • Videos
  • Photos
  • Author
  • Rss Feed
  • Advertise with us
  • Privacy Policy
  • Legal Disclaimer

Latest Trending Updates

  • EPFO
  • Budget 2020
  • Income Tax Return
  • Auto Expo 2020
  • Home Loan
  • Business News

Trending Topics

  • Income Tax
  • income Tax Calculator
  • 7th Pay Commission
  • Reserve Bank of India
  • GST
  • Latest Business News

Follow us on

zeebiz
zeebiz

Partner Sites

  • Zee News
  • Hindi News
  • Marathi News
  • Bengali News
  • Tamil News
  • Malayalam News
  • Gujarati News
  • Telugu News
  • Kannada News
  • DNA
  • WION
Copyright © Zee Media Corporation Ltd. All rights reserved