Investors running away from risk in global capital markets

NEW YORK (BLOOMBERG) - Investors around the world are running away from almost anything smacking of risk in capital markets.

Sales in the US junk-bond market have stalled, Chinese lenders are bracing themselves for a new bout of defaults, and initial public offerings - from First Data Corp to Albertsons Cos - have been marred by investors uneasy about opening up their wallets. Blaming adverse conditions, Petroleo Brasileiro, the world's biggest junk-rated borrower, cancelled plans for its first local-currency bond sale in 15 years.

The cautiousness among investors stems from worries over global growth, spurred by a slowdown in China's economy. That comes as the largest central banks mull easing policies that have failed to provide a strong boost to their economies. Several upcoming offerings may test investor appetite for risk, including the debt Dell is expected to issue for its US$67 billion (S$92.8 billion) purchase of EMC Corp.

"Everyone has become conservative at the same time," said Mr Ashwin Bulchandani, chief risk officer at investment firm MatlinPatterson. "Investors are wondering if the uncertainty and growth concerns are temporary or is something more sinister going on in the background. You've got a particularly messy cocktail of things coming together at one point."

Dell is planning to raise up to US$49.5 billion to fund the largest tech deal ever. Even if just a quarter of that is raised in the US high-yield market, it could be a record junk-bond offering.

The corporate junk-bond market in the US is in the midst of an unprecedented slowdown, seven years after a boom in such debt spurred by the Federal Reserve's easy-money policies. The market's on pace for its slowest October since at least 2005, according to data compiled by Bloomberg.

Only one such deal has priced in three weeks, and those unable to wait have tried and failed. Canadian organic food company SunOpta Inc and machine-parts maker NN Inc scrapped bond deals and may be forced to lean on their banks to provide back-up financing.

A Goldman Sachs-led group of banks is struggling in its bid to raise US$2.8 billion of debt for Concordia Healthcare Corp, after having provided committed financing for the Canadian pharmaceutical company's acquisition bid.

Slowing economic growth is adding to strains in China's 42.2 trillion yuan (S$9.1 trillion) bond market, which has had five defaults this year, according to China International Capital Corp. State-owned steel trader Sinosteel Co may be the next, with a default likely to make it much harder for other Chinese steel companies to tap the markets for financing.

In the equity markets, in just the last week, Digicel Group Ltd cancelled its IPO plans, grocery-chain Albertsons postponed its offering and First Data was pushed to price its shares below below the marketed range.

Anxiety about corporate profits drove those decisions. Wal-Mart Stores predicted earnings will decline next year and quarterly results from JPMorgan Chase & Co disappointed.