Sterlite adds on debut; AMR, Gilead slip lower with shares; AMD stronger after earnings

By Rebecca Melvin

New York, Oct. 16 - Sterlite Industries (India) Ltd.'s newly priced 4% convertibles traded up on their debut Friday to about 105 as the bonds' underlying shares bounced back from a sharp drop when the deal was announced Thursday.

The mining company's $500 million convertible offering was substantially oversubscribed, a syndicate source said. But market participants described secondary market dealings as tepid.

Overall activity in the convert space slowed down considerably Friday from average activity on Wednesday and Thursday.

"It was very slow. I don't have anything to tell you, unfortunately," a New York-based sellside trader said.

The new AMR Corp. 6.25% convertibles due 2014, which moved up notably earlier in the week, slipped back Friday but still remained above Monday's price level.

AMR has been riding the more positive current in the overall air carrier sector. But that wind died down somewhat on Friday amid Bureau of Transportation statistics that showed July domestic passenger numbers fell 3.4% from a year ago to 68.1 million, while international passenger numbers fell 4.8% in July.

Gilead Sciences Inc. also dropped back after notching an increase Thursday.

But Advanced Micro Devices Inc. convertibles were stronger after the Sunnyvale, Calif.-based chip company reported another loss for its third quarter, but which was better than expected, and gave a muted outlook.

AMD convertibles were among the holdings of the Galleon Group, which made headlines Friday after the hedge fund's founder, Raj Rajaratnam, was arrested along with five others, including ex-directors of a Bear Stearns Cos. hedge fund, and charged with insider trading.

A New York-based sellside trader said investors would probably pull their money out of Galleon, but it shouldn't affect the market.

"Other guys, bigger than that, have been able to liquidate with no problem," the sellsider said.

"They didn't have many converts, only the Advanced Micro 5.75% and 6% paper," the sellsider said. "It should have no impact on convertibles."

AMD pricing did not seem impacted by the news.

Stock markets fell Friday amid disappointing earnings after a rally Wednesday sent the Dow Jones Industrial Average to a close over 10,000 for the first time since October 2008. The Dow extended gains on Thursday but came off on Friday.

Sterlite gains on debut

The new Sterlite Industries 4% convertibles due 2014 traded up to 104.75 bid, 105.75 offered. Shares of the Mumbai, India-based mining company jumped $1.20, or 7%, to $17.82 after dropping 10% after the deal was announced Thursday afternoon.

The premium was based on the volume weighted average price of the shares between launch and pricing, similar to the way many European deals are priced, which is favorable for the issuer.

Although it was a relatively large $500 million issue, there wasn't a lot of interest in the name once it was released for secondary dealings.

"Nobody cares," a sellsider said, adding that the whole market was very quiet, with few people looking to buy or sell convertibles.

The notes are convertible into the company's ADS at an initial conversion price of about $23.33 per ADS.

AMR extends gains

The AMR 6.25% convertibles due 2014 traded at about 103 as its shares dropped to $7.66. That compared to 106.5 versus a share price of $8.00 on Wednesday, 104.5 versus a share price of $7.80 on Tuesday and 102.375 versus a share price of $7.55 on Monday.

Airlines have been boosted on the credit side by recent refinancings, and they are also getting better pricing for fairs with booking expected to be strong for the holidays.

"They are doing better, and oil has gone up due to expectation of global economic recovery," a sellsider said.

Shares of AMR, a Fort Worth-based airline, fell 19 cents, or 2.4%, to $7.66 on Friday after data showed that July passenger numbers for the industry fell.

Gilead eases off

The Gilead 0.625% convertibles due 2013 traded back to 126.50, where they were last seen, versus a closing share price of $46.17. The paper had traded as high as 130 on Thursday amid no particular news, one source said.

The Gilead 0.5% convertibles due 2011 traded Friday at about 126, which was little changed from previous levels.

The Foster City, Calif.-based biopharmaceutical company, maker of antiviral drugs, has seen its securities move recently with reports about swine flu and regular seasonal flu.

Swine flu was declared a pandemic in June. It differs from the seasonal flu in that it often moves deeper into the lower respiratory tract more so than regular flu and is thereby more likely to cause viral pneumonia.

AMD strengthens further

AMD's 6% convertibles due 2015 were seen closing at about 76 Friday compared to 74.75 on Thursday, while the AMD 5.75% convertibles due 2012 were seen settling at 86.80 compared to 86.80.

Shares of the Sunnyvale, Calif.-based chip maker fell 45 cents, or 7.3%, to $5.74 on Friday.

The company reported a narrower-than-expected third-quarter loss of $128 million; while operating income increased to $76 million from $48 million. Revenue of $1.296 billion was down 22% from the same quarter a year earlier, but up from the second quarter.

On Monday AMD's 5.75% convertibles due 2012 stood at 85, while the AMD 6% paper due 2015 was at 74. Shares Monday were $6.14.

As for its outlook, AMD expected its products company revenue to be up modestly for the fourth quarter, which was not as strong a forecast as its larger rival Intel.

AMD president and CEO Dirk Meyer said that strong demand for its product and platform offerings in the third quarter resulted in the AMD product company achieving profitability in the third quarter.

Growth in microprocessor and graphics unit shipments drove an 18% sequential revenue increase, while improved factory utilization rates, higher microprocessor average selling price and an increase in 45nm product shipments resulted in a gross margin improvement from the second quarter.

Third-quarter gross margin was 42% compared to 37% in the prior quarter. Third-quarter product company non-GAAP gross margin was 38% compared to 27% in the prior quarter.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

AMR Corp. NYSE: AMR

Gilead Sciences Inc. Nasdaq: GILD

Sterlite Industries (India) Ltd. NYSE: ADRs: SLT

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