SINGAPORE, KOMPAS.com - A tender offer by Indonesian independent power company PT Cikarang Listrindo, the success of which is necessary for the issuance of a planned bond, is due to expire later Friday.
But some investors are unhappy with the company's offer, which would subject them to a weaker framework even if they choose not to accept it. If the deal goes ahead, Cikarang plans to sell a seven-year Reg S/Rule 144A senior dollar bond, which would be non-callable for the first four years. The offering is likely to be made next week, a person familiar with the matter said.
Proceeds from the proposed bond would be used to pay for the debt buyback, to construct a planned new coal-fired power station and for general corporate purchases, a term sheet showed.
Fair value of the planned seven-year bond would be about 8%, Nomura International analyst Annisa Lee wrote in a research note. But she said she wouldn't be surprised to see it priced at about 7.5%, given a shortage of quality high-yield deals, Cikarang's repeat-issuer status and its relatively stable operations.
The tender offer applies to the 9.25% coupon US$300 million five-year dollar bond, which Cikarang issued in 2010 and which is non-callable for the first three years. The company has set a tender price of 110.75 with a deadline of Friday 5 p.m. EST, a term sheet seen by Dow Jones Newswires showed. Results are expected by Monday.
According to a separate document produced for investors, Cikarang is asking bondholders for permission to omit certain covenants as a condition for accepting the tender, which would open the way for the company to borrow more money as well as removing other restrictions on its activities.
The tender price is higher than the secondary-market price for the bonds, of around 108 to 109 before the offering was announced. It is also higher than the 104.625 call price for the bonds that the firm could exercise next year.
But some bondholders said that, particularly given the covenant changes, the company should pay them the higher price that it would be obliged to offer if it were to buy back the entire bond issue before the call date.
Scott Bennett, head of Asian credit at Aberdeen Asset Management Asia, which owns some of the outstanding bonds, said he had told the company he wouldn't participate in the new bond offering unless it raised the covenant-approval threshold to 75% from the 50%-plus currently required.
“The problem is that, if the majority agrees to the offer, the change in the covenant will be applied to all, and only those creditors who submitted approvals will get paid,“ Bennett said. “The other holders who voted against the plan get paid nothing and own the covenant-lighter bond. That's not equal treatment of creditors.“
The majority-approval requirement is standard for Asian high-yield bonds. But this has enabled issuers to employ a “divide-and-conquer“ approach by pressuring individual investors to agree to consent for fear of being in the objecting minority, Bennett said. A 75% rate would increase the ability of investors to collectively challenge the issuer, he said.
Barclays Capital and Credit Suisse are joint lead managers and bookrunners for the proposed deals, but are prohibited from commenting on the transactions before they are completed. Cikarang is rated Ba2 by Moody's Investors Service and BB-minus by Standard & Poor's Ratings Services.
