SINGAPORE, KOMPAS.com - Independent Indonesian power producer PT Cikarang Listrindo's new seven-year dollar bond was stronger in initial trading Tuesday, in a positive signal for other potential Asian high-yield issuers.
Cikarang priced the US$500 million bond, which is callable after four years, early in the Asian morning at par to yield 6.95%--the tight end of final guidance--compared to initial guidance of around 7.50%.
It marks the first globally distributed Asian high-yield deal since August and the maiden corporate bond issue from Indonesia since the sovereign was promoted to investment grade by Fitch Ratings and Moody's Investors Service. Early afternoon in Asia, the Reg S/144a bond was trading around 101, after rising to 101.125 earlier, a trader said.
That reflects strong demand for the deal, which attracted investor orders worth around US$4.3 billion from over 250 accounts, with fund managers and asset managers absorbing 67% of the offering, a term sheet for the deal showed.
The sale follows a tender offer and consent solicitation on the firm's outstanding 9.25% coupon, $300 million five-year dollar bond issued in 2010, which is noncallable for the first three years, for which the company set a tender price of 110.75.
An overwhelming majority of investors--93.33%--agreed to that offer, which gives Cikarang permission to omit certain covenants, opening the way for it to borrow more money and removing other restrictions on its activities.
“The tender success rate and the pricing we achieved underscore the strong support we have from our key investors, many of whom have been following our credit since we first issued in 2010,“ said Andrew Labbaika, commercial director at Cikarang.
Some investors criticized the structure of the tender offer, which they said meant that those who voted against the consent solicitation would still be bound by the weaker covenant structure, but miss out on the cash incentive.
Bryan Collins, fixed income portfolio manager at Fidelity Worldwide Investment, which as of April 2011 held at least 5.6% of Cikarang's 2010 bond, said the nature of the consent solicitation was “highly coercive.“
“Speaking generally, if a company shows a strong willingness to erode covenants, that's the clearest signal to a lender that it considers the terms optional and I don't consider that a company worth lending to,“ Collins said, adding that Fidelity chose not to take part in the new bond offering.
Bankers familiar with the deal noted that the 2010 bond was sold in the aftermath of the financial crisis, when investors were demanding much more stringent features from debut issuers, restricting the company's ability to raise future debt.
“The results of the tender and the new bond issue speak for themselves,“ said Kenneth Lee, head of Asia-Pacific debt syndicate at Barclays Capital, which along with Credit Suisse was bookrunner on the deal.
“They are a vote of confidence in the management of Cikarang Listrindo, with many existing investors participating in the new issue.“
Cikarang is rated Ba2 by Moody's Investors Service and BB-minus by Standard & Poor's Ratings Services.