What a difference a few years makes. And, if anything, it proves that memories are short. Back in 2009, Indonesian tyre-maker Gajah Tunggal was forced to restructure its bonds to avoid defaulting on a coupon payment. Yet on Friday, it made a successful return to the debt markets, closing a $500 million high-yield bond.
Its five-year bond, which is callable after three years, is one of the few this year to be sold under the Reg-S/144a format, which allows it to be sold to onshore US investors. With the exception of Country Garden and Indika Energy, most of the dollar bonds this year have been primarily sold to Asian investors.
The company achieved the lowest coupon for a single-B Indonesian issuer for a five-year tenor — with the coupon fixed at 7.75%. The initial guidance was in the 8.25% area, revised to 7.95% to 8.05% and priced at the tight end of final guidance.
Its pricing was competitive compared to other single-B peers out of Indonesia, such as Alam Sutera, Chandra Asri and MNC Sky Vision. “It is rare to see a single-B credit that prices with at a 7% handle,” said one source.
In secondary, Gajah Tunggal’s bonds went on to rise and were quoted at 100.625/101 on Monday, 1.5 points above the 99.188 reoffer. The deal attracted $3.75 billion of orders from 200 investors.
US investors were allocated 37%, Asian investors 41% and European investors 22%. Fund managers were allocated 80%, private banks 11%, insurers 6% and other investors 3%.
Gajah Tunggal, which is Southeast Asia’s biggest tyre-maker, clearly benefited from not being a Chinese property name, said one Singapore-based investor. Given the glut in that sector, investors are becoming far more picky. But it also has a history of restructuring and, while some investors do remember that, others it would seem do not.
In 2009, Gajah Tunggal completed an exchange of its outstanding $420 million 10.25% bonds, which mature on July 21, 2010, for a new five-year bond with a step-up coupon structure. It was effectively a distressed exchange offer and helped the company to narrowly avert defaulting on a coupon payment.
The restructured bonds paid a 5% annual coupon for each of the first two years, stepped up to 6% in year three, then 8% in year four and back to 10.25% in the final year. At the time, Standard & Poor’s explained that if the proposed exchange offer was completed, it “would view the exchange offer as coercive, hence tantamount to default”.
“We regard the proposed change in the coupon rate, the capitalisation of $21.5 million interest into the new bonds and extending of maturity until 2014 (beyond the original 2010), as a loss of value to investors because of lower yield,” said S&P credit analyst Wee Khim Loy back in 2009.
He also noted that if the proposal was not accepted, Gajah Tunggal would have been unlikely to be able to service all its debt obligations or remain in compliance with its covenants.
Gajah Tunggal plans to use the proceeds from its latest bond to repay about $413 million outstanding under its 2009 restructured bond. The main assets to secure the bonds are three of the company’s production plants and Gajah Tunggal’s 25.6% stake in Polychem Indonesia.
According to S&P, the financial covenants under the latest issue are “somewhat looser” than the covenants under Gajah Tunggal’s 2009 restructured bond. According to the rating agency, the company can incur additional debt if its fixed charge coverage ratio exceeds 2.75 times on a rolling 12-month basis.
Credit Suisse, Deutsche Bank and HSBC were joint bookrunners.
