Malaysian conglomerate Multi-Purpose Holdings yesterday completed a RM300 million ($79 million) exchangeable bond. Despite the previous use of bonds with warrants, this was the first pure exchangeable to come out of the country.
The bond is exchangeable into shares in the country's largest number forecasting gambling company, Magnum. Before the deal, Multi-Purpose owned 32% of Magnum, and the deal represents 5.2% of Magnum's total shares.
The bonds have a five-year tenor and carry a coupon of 5%. They will be redeemed at par on maturity, or exchanged into shares of Magnum at RM3.66 - a 25% premium to the RM2.93 volume weighted average price of Magnum's stock for the previous five days.
The bonds carry two other features. Firstly they are callable after three years subject to a 130% trigger. There is also a cash redemption clause, allowing Multi-Purpose to pay cash instead of shares even if Magnum's share price is above the redemption price.
The deal was sold by Deutsche Bank, which was sole bookrunner and lead manager of the deal. Newfields Advisors and Southern Investment Bank also advised the company on the deal. Rating Agency Malaysia has rated the bonds at A3.
The book was said to be 1.5 times oversubscribed with roughly 30 separate accounts coming in. Interestingly, the final split saw 60% of the bonds go offshore, while 40% were sold to domestic investors.
According to Sanjay Arora, head of Asian convertibles at Deutsche Bank, international investors needed reassuring that ringitt-denominated bonds could be sold offshore, despite the presence of the peg to the US dollar. But once they were OK with the intricacies of Mahathir's peg, they quickly came through with orders. "We’ve not seen much convertible issuance out of Malaysia," Arora comments. "But this dearth of paper is why the international investors wanted to take part in the deal."
Proceeds from the issue will be used to pay down some of Multi-Purpose's short-term debt. At the end of 2002, the company had RM755 million of short-term liabilities, according to Bloomberg data. Much of this is secured on Multi-Purpose's various assets in subsidiary holdings. Thus the rationale for the deal was lengthening the company’s debt profile, through monetizing its equity holdings. "This deal gives Multi-Purpose long-term, unsecured finance," says Arora. Moreover, by being denominated in ringitt, there is no currency risk.
According to Arora, given that this was a new instrument for the market, there was a fair amount of investor education involved. But once that was complete, the bond was launched and priced within three hours.
