Wind bonds prove exuberance remains in high-yield market (WSJ)

Investors have snapped up bonds issued by Wind on a yield of less than 10%. That is pretty punchy.
Naguib Sawiris's Weather acquired Wind for $14 billion. But Wind EBITDA at Euro 1.4 billion puts it on par with Turkcell & Mobistar and implies valuation of Euro 9.5 billion. This means that bond investors are effectively buying equity. Rather than receiving 20% + returns they are getting a fixed 10%.

Why have they accepted this? First, they presumably buy the Sawiris argument that Wind was undermanaged by its old parent Enel and that there are quick wins that will degear the company. Second, they hope Wind will be sucked into pan-European mobile consolidation at a juicy price. And lastly, they point out that Mr. Sawiris has sunk a lot of equity into Weather -- including his majority stake in Orascom, the Middle Eastern telecom group he built. Surely he would lose heavily if things went wrong.

That may sound reasonable. But Mr. Sawiris is not a seller. Far from it, he'd like to merge Wind with Orascom -- a deal that few believe offers many industrial benefits. And, as for his equity contribution, Mr. Sawiris has control of Weather, so the injection of Orascom into Weather isn't quite the commitment it seems to be. His stake would not be forfeited if anything went wrong at the Wind level.

Bond investors are taking a punt on Wind. Hopefully it's not an irrational one.