Market players eye 51job ahead of pricing; DFC Global slips; USEC paper active in low 30s

By Rebecca Melvin

New York, April 3 - Convertibles were quiet and little changed on Thursday as equity and credit markets remained choppy - a trend that has been in place all week, an East Coast-based buysider said.

51job Inc.'s planned convertible issue was in focus ahead of pricing seen after the market close. Some market players viewed the company as worthwhile due to fairly strong fundamentals, but others said they hadn't looked at the $150 million deal of five-year bonds because of its small size. They also expressed reticence about the fact that it was yet another company that falls into the category of Chinese internet, a space that has bombarded the U.S. convertible market with issuance in recent months.

There was no gray market reported in the 51job deal late Thursday.

Elsewhere, the convertibles of DFC Global Corp., or Dollar, were flat to lower, paring stellar gains notched Wednesday and despite shares that were extending gains on Thursday.

Dollar was the name of the day on Wednesday after news the Berwyn, Pa.-based financial services company is being acquired by private equity firm Lone Star Funds LLC.

A few distressed names were also seen in trade on Thursday. Bankrupt USEC Inc.'s 3% convertibles due in October were busy. They traded up to as high as 35.5 during the session, which was up 3.5 points on the day, but they retraced some of the gains to end around 33.375, which was up a little more than a point on the day, according to Trace data.

USEC's convertibles traded as high as 40 in early March after the Bethesda, Md.-based nuclear fuel and service company filed a pre-packaged Chapter 11 bankruptcy plan as expected in the U.S. Bankruptcy Court for the District of Delaware.

Overall, the week in convertibles was described as "boring." "Not much is happening, which isn't necessarily a bad thing," a buysider said.

One reason for the light trading is that many convertible sellsiders are attending the annual Crabfeed event in Los Angeles hosted by SSI Investment Management, a New York-based trader said.

"It's slow today. It's going to be slower tomorrow," the trader said.

But the broader markets were also subdued, with investors reluctant to make big decisions ahead of the U.S. jobs report on Friday. Equities bounced around and ended just slightly negative.

The S&P 500 index slipped 2.13 points, or 0.1%, to 1,888.77. The Nasdaq stock market shed a much greater 38.72 points, or nearly 1%, to 4,237.74; and the Dow Jones industrial average ended essentially unchanged, or down 0.45 point to 16,572.55.

51job to price

Shanghai-based 51job, a provider of online recruitment services and human resource services in China, was the subject of market players' complaints and praise on Thursday.

"I spent no time on it," an East Coast-based buysider said. He admitted to being tired of all the Chinese internet deals, "but there is a group of people that are interested, and these deals keep getting done."

A second East Coast-based buysider said that 51job is actually "not a bad company." It is generating cash flow, has good management, has a good track record and a good business model, he said.

He also said there was little room to complain given that the market needs new paper.

Nevertheless, the list of Chinese internet companies accessing capital through the U.S. convertible market is getting unarguably long. Among them are SouFun Holdings Ltd., Ctrip.com International Ltd., E-House (China) Holdings Ltd., which priced last year, and Vipshop Holdings Ltd. and YY Inc. more recently.

"My advice is: if you don't like it, don't buy it," a buysider said.

He didn't see investor fatigue as a legitimate issue. "People are going to be stacking these deals up next to each other and there will be some cheapening if it doesn't look favorable, and it will become harder and harder to bring a new issue," he said

The good thing is that "I can avoid the ones I don't like," he said.

He likened the situation to last year when a number of mortgage real estate investment trusts brought deals. "I was against the mortgage REITs, until eventually I said OK, I like this one and I like that one, and I got rid of all the rest," he explained.

Overall the valuations of the Chinese internet companies are horrible, he said. But 51job "is not a very bad company at all."

He said he would put the credit spread on the issue at 600 basis points to 700 bps over Libor, a level that he generally doesn't go below when valuing this space.

51job is offering $150 million of five-year convertible notes in a Regulation S and Rule 144A deal to yield 2.75% to 3.25% with an initial conversion premium of 25% to 30%.

51job shares fell $5.50, or 7.4%, to $68.39 on Thursday.

Dollar slips

DFC Global 3.25% convertibles due 2017 bounced around slightly on Thursday but ended at about 96, which was down from 97.125 on Wednesday, according to Trace data.

Dollar shares closed up 17 cents, or 1.8%, to $9.62 on Thursday.

Shares of the financial services company, which serves unbanked or under-banked consumers, gained 47 cents, or 5.2%, to $9.45 on Wednesday.

The company has entered into a definitive agreement to be acquired by an affiliate of Lone Star Funds in a deal including the assumption of debt valued at about $1.3 billion.

Upon completion of the deal, DFC Global will be a privately held company.

Under the agreement, DFC Global stockholders will receive $9.50 in cash for each share of DFC Global stock they own. This represents a premium of 5.8% to DFC Global's closing stock price on April 1. A third-quarter close is expected.

Mentioned in this article:

DFC Global Corp . Nasdaq: DLLR

51job Inc. Nasdaq: ADS: JOBS

USEC Corp. NYSE: USU

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