Astra Sedaya priced a $300 million three-year bond on Wednesday at the lower range of final price guidance after a 15-year hiatus for the Indonesian car financing company, upsizing it from a reported $250 million.
Rated Baa3/BBB-, the Reg S-only offering priced at US Treasuries plus 200 basis points is 25bp tighter than initial price guidance, according to a term sheet seen by FinanceAsia. The bond's coupon is 2.875%.
Investor sentiment towards Indonesia credit has been running high since President Joko "Jokowi" Widodo assumed office in October. Indonesia's bond market recorded a 13.6% gain in 2014, the second-best national performance in Asia after India, according to Maybank in a January report.
"The highlight of 2014 was the general election with President Jokowi winning the presidential election, [the] fuel price hike, and discussion of US monetary policy normalisation," Anup Kumar, an analyst at Maybank, said.
Astra Sedaya's historic combination of good-quality assets and low non-performing loan ratios also helped garner good interest for the transaction. The issuer has a large buffer to withstand any deterioration in asset quality deterioration, with a loan-loss coverage ratio of 490% at the end of 2014 and an equity-to-assets ratio of 15%.
Even in the used car segment, where credit quality has been volatile, the firm's asset quality has remained stable, reflecting its good risk management, credit analysts said.
Moody's expectation of stable asset quality is further supported by the regulatory tightening over the last two years of loan-to-value ratios for new car loans. “This measure should help its asset quality remain stable, even as economic growth slows,” Srikanth Vadlamani, a senior credit analyst at Moody’s, said.
Astra Sedaya obtained a total orderbook of $2 billion from over 150 accounts, 80% of which went to Asian investors and the rest to European investors, according to a source close to the deal. Fund managers nabbed up 62% of the paper, followed by banks 23%, insurers 9% and private banks 6%.
Somewhat offsetting these strengths is the company's relatively weak liquidity management, which stems from the nature of its business. As a finance company, Astra Sedaya does not have a retail funding franchise and relies on wholesale sources for its funding needs.
The company funds itself through bank borrowings as well as by issuing bonds, but that shouldn't be a major deterrent in the short-term.
Considered the largest passenger car financing company in Indonesia by assets, Astra Sedaya was last in the market with a greenback offering back in 1999 and has no outstanding dollar-denominated bonds, according to Bloomberg data.
The company had total assets of Rp33.3 trillion ($2.5 billion) as of end-December 2014.
Astra’s fair value
The closest comparables for Astra Sedaya’s latest dollar offering are Indonesian banks and other regional financial leasing companies.
That includes the likes of Bank Rakyat Indonesia, Bank Negara Indonesia, and Export-Import Bank of Indonesia, which have outstanding three-year bonds currently yielding 2.78%, 2.39%, and 2.51%, respectively, according to a source familiar with the matter. This translates into a G-spread of 186bp, 179bp and 191bp, respectively.
Investors are also looking at differences in the way lease finance companies and their parents trade in debt markets. For example, the spread differential between BOC Aviation versus Bank of China as well as ICBC Leasing versus Industrial and Commercial Bank of China's outstanding dollar-denominated bonds is about 40bp, the source said.
The spread differential is then factored into the G-spreads of the Indonesian financial institutions, meaning that fair value for Astra Sedaya’s note should be between 220bp to 230bp.
Astra Sedaya, a subsidiary of conglomerate Astra International, operates in both the new and used car markets, with new cars accounting for 78% of its portfolio as at the end of 2014. Its position in the new car market is driven by its strong relationship with its parent — where it provides direct financing services for buyers who purchase Astra International’s cars — as well as by its 30-year-long presence in the market.
The company has a high level of profitability, reporting a return on equity of 24.5% and return on assets of 3.6% in 2014. This high profitability is driven by a combination of a high net interest margin and low operating costs, and seems sustainable, according to Moody’s in a report on March 19.
Astra International — which is 50.1% owned by Jardine Cycle & Carriage, part of Jardine Matheson Group — is the dominant vehicle distributor in Indonesia, accounting for 51% of the passenger car sales in the Indonesian car market in 2014.
HSBC was the global coordinator and bookrunner of the transaction, which is part of the issuer’s $1 billion global medium-term note programme. Other bookrunners include DBS, Mizuho Securities and Mitsubishi UFJ Financial Group.
