A bank, a developer and a retailer walk into a market...

As global markets are becoming increasingly difficult to predict, Asia's international debt pipeline will look to sell one investment grade and two high-yield deals later this week.
Despite the continued weakness in global bond markets, three new offshore offerings are expected to hit the market later this week. Korean government-owned National Agricultural Cooperative Federation (NACF), Philippine developer Megaworld and IndonesiaÆs largest retailer Matahari Putra Prima will all look to test a market starved of new issuance.

"It's good to see some deal flow again," one banker assesses. "But it's very definitely a buyers' market out there at the moment."

NACF, the primary banker to KoreaÆs farming community, is currently on the road with a $400 million Reg-S lower-tier 2 10-year non call five-year deal led by BNP Paribas, Calyon, and Merrill Lynch. Investor presentations will take place in Singapore and Hong Kong before heading over to London.

This will be the third consecutive sub-debt offering from the Baa1/BBB+ rated Korean issuer, following similar deals in 2004 and 2005.

The group has an existing 5.75% June 2014 callable June 2009 and a 5.125% May 2015 callable May 2010. Currently NACFÆs earlier deal is trading at the 45bp over mid-swaps area, while the 2015 bond was quoted at 60bp over.

NACF's other main benchmark is Woori Bank, which carries a comparable Baa2/BBB+ rating. Woori recently priced a $1 billion April 2016 bond callable in 2011 deal. That deal priced at 67bp over swaps, inside of initial guidance. However, Woori was fortunate enough to price in the midst of a bullish upturn in the market that was driven by strong investor demand on the back of recent upgrades in Korean ratings. At the time NACF was launched on Monday, WooriÆs deal was trading around the 68bp level.

Bankers estimate that a new NACF sub deal to offer a 7bp to 10bp premium over its own 2015 deal. However, with the international debt markets so volatile in recent days, that level could push out further if sentiment becomes increasingly bearish.

Further exacerbating the issue will be the fact that Korean prosectutors have sought an arrest warrant for NACF chairman Chung Dae Kun. Chung allegedly accepted money from Hyundai Motors in 2001 - in return for allowing the auto manufacturer to buy an NACF building in Seoul below fair market price.

On the high-yield side, Megaworld began marketing a $150 million-200 million five year deal last Friday in Manila via sole lead UBS.

The unrated bullet structured deal roadshowed with investors in Hong Kong on Monday and will continue on to Singapore today (May 23).

Megaworld presents the market with an interesting test case in terms of Asian high yield issuance. In the face of a weakened market, it is a strong brand name in the Philippines, but has only a glancing imprint among regional debt investors. That probably means the lead manager will have to rely on a strong domestic bid to help propel the deal to the finish line.

Despite this, Megaworld does has a strong credit story to sell. Megaworld posted increasingly positive year end results for 2005. Compared to 2004, revenues were up almost 20% to a total of Ps5.32 billion. On the back of a reduction in capital expenditure from Ps3.5 billion to Ps866 million, net profits increased by almost a third to Ps1.15 billion, from Ps807.69 million. And just recently, Megaworld reported a 41% in profit over the first quarter. Attributable profits rose to Ps605.25 million versus Ps430.73 million a year earlier on sales of Ps1.2 billion.

Additionally Megaworld has continued to increase rental income for the five consecutive years. It report a rental income of Ps40 million in 2000, while collecting Ps542 million last year, an overall increase of 13-times, and an increase of 20% from 2004.

Cash and cash equivalent balance, at Ps2.85 billion, was six percent higher year on year. While, total equity rose by six percent to Ps17.87 billion from Ps16.77 billion in 2004.

Megaworld continues to maintain a strong liquidity position with current assets amounting to almost P15 billion and a bank debt-to-equity ratio of 7%.

In 2004, Megaworld earmarked Ps20 billion in capital expenditure to oversee the completion of a number of new landmark projects of residential and office space, however at the end of April it announced that it would more than double this amount to Ps47 billion.

Lastly, bankers expect to see IndonesiaÆs leading retailer, Matahari, tap the market later this week with a minimum $200 million offering. As yet terms had not been finalised, but the deal could be increased to as much as $300 million, with most bankers anticipating a five-year bullet structure.

Joint Leads Credit Suisse and UBS yesterday conducted roadshows in Singapore before heading off to Hong Kong and London, respectively.

The deal will no doubt get a boost from its rating upgrade by Standard & PoorÆs. S&P raised Matahari two notches from B- to B+, while MoodyÆs assigned a B1 rating following its upgrade of the sovereign last week.

ôThe upgrade is based on the company's continued improvement on several operational fronts to strengthen its competitive position, as well as the significant reduction in its foreign exchange risk exposure after the repayment of its US dollar debt,ö S&P said in its recent ratings report. ôNevertheless, the rating continues to reflect Matahari's exposure to the generally very difficult and high-risk operating environment in Indonesia, very competitive trading conditions, and the susceptibility of its liquidity position to counterparty risks and the weak credit quality of the domestic banking system.ö

In its ratings report, MoodyÆs stated: ôMatahariÆs debt service ratios are modest with adjusted net debt/Ebitda to stay around five-times to 5.5-times and operating cash flow/average adjusted total debt at 10% to 15% in the medium term.ö

ôHowever, Ebit/interest is relatively weak at one-times to 1.5-times. Its free cash flow metrics are also weak, given the aggressive Capex programme it is implementing to expand its store network. This situation will increase the companyÆs exposure to execution risk.ö

Matahari has earmarked Rp1 trillion to expand its operation by 10 hypermarkets, another 10 department stores and five specialty stores by the end of the year.
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