Investor appetite in the high-yield market reached a limit after Sunshine Oilsands Ltd. of Canada pulled a proposed $325 million bond due to lack of demand from U.S. and Chinese investors.
The high-yield bond market, prepared to fund defaulters from Ecuador to Argentina, drew the line at Sunshine Oilsands, which sought bond financing to build out wells after running out of other means of support, said Geof Marshall, who oversees about $8 billion of high-yield bonds at CI Investments Inc.
China-backed Sunshine, based in Calgary, has been stymied by a lack of funds that’s delaying development of its first commercial oil-sands project, called West Ells.
Chinese investment in Canada’s energy patch has tumbled following Cnooc Ltd.’s $15 billion purchase of Nexen Inc. in 2012. While the Canadian government approved the deal, it warned that it would only back additional Chinese bids for oil-sands firms in “exceptional cases.”
Chinese joint ventures and direct investments in Canada have suffered from weak returns by companies like Sunshine, Penn West Petroleum Ltd. and Athabasca Oil Corp.
Sunshine started reviewing strategic alternatives including debt or equity financing and joint-venture agreements to fund West Ells and other projects in August. Lenders didn’t renew a C$200 million ($187 million) line of credit in November because of insufficient backstop funds.
Mark Pibl, at Canaccord Genuity, says, “it’s insane they even thought they could raise this. They have no revenues, they have negative” earnings before interest and taxes.