Asia Aluminum Holdings surprised the market yesterday with its planned seven-year bond issue of up to US$425 million - more than the firm's market capitalisation. The largest producer of processed aluminium in Asia has a market capitalisation of $2.88 billion, based on Tuesday's closing price. 'The deal is very aggressive. Both the gearing and interest coverage ratios of the company will be significantly deteriorated,' said a fund manager who met management of Asia Aluminum yesterday. 'The company also looks very desperate - it appears it could not tap into funds in the equity market,' the fund manager said, noting that the company raised $517.9 million via a top-up placement arranged by JP Morgan in January. Proceeds from the seven-year bond are expected to fund expansion into rolled aluminium products and to repay a US$75 million, three-year syndicated loan. Asia Aluminum plans to spend US$450 to US$460 million to more than double its annual extrusion capacity to 300,000 tonnes by the end of next year and add aluminium flat-rolled capacity of 400,000 tonnes by the end of 2006. 'But there are uncertainties as to how the planned capacity for rolled products will be absorbed and if the company can achieve its targeted profitability,' the fund manager said. 'The loan repayment also seems odd - there's no urgency to repay,' he added, noting that the US$75 million syndicated loan was secured in the middle of last year from a group of banks including HSBC, Bank of East Asia and Citic Ka Wah Bank. The firm might want to withdraw the covenant restrictions, such as gearing levels, associated with the loan, the fund manager said. Some fund managers were concerned about the company's corporate governance and management integrity after it shocked investors earlier this year with disappointing first-half results. Investment bank UBS even suspended research coverage on the company in early April, citing a lack of confidence in obtaining reliable information. Morgan Stanley is arranging the bond issue.