Commodity trading company Noble Group yesterday priced one of the most successful debut offerings of international debt as it secured $700 million at 225bps over treasuries. The deal gives the company all in cost of funds of 6.756%.
After a one week road show the book was said to be $2 billion in size with almost 200 accounts present. This allowed the bonds to price at the tight end of the range of 225bps-237.5bps over treasuries and upsize from an initial size of $500 million.
However, what is surprising about the deal is that while the bonds were rated non-investment grade at Ba1/BB+, the covenant package surrounding the bonds was similar to that of an investment grade deal, in that all the usual restrictions and covenants present in a high yield deal were absent. To this extent it is perhaps most similar to the Hanaro Telecom deal of last year.
Observers say that this is a sign both of the strength of demand for Asian corporate credit in general and the belief that perhaps the rating agencies had got this one wrong.
Noble is a very fast growing company that nevertheless is in a position of net cash, if you count its receivables as 'near cash'. This is the term that global commodity companies such as Cargill use for their short-term accounts receivable and they are treated as cash on the balance sheet. Hong Kong accounting rules do not permit this.
Noble's financial strength and strong debt coverage ratios led many investors to believe that it was rated too low. They showed their sentiments by investing in a deal without the covenants you would normally expect from a similarly rated trade.
The deal will allow Noble to completely change its capital structure. Previously, much of the company's debt was at the operating level and secured on assets such as ships and property. Now 50% of the proceeds of the new bond will go to pay down that old debt, and the new debt will sit at the holding company level. The other 50% of the proceeds is likely to be put into a war chest for future acquisitions.
JPMorgan was sole book runner on the deal. Clifford Chance was legal adviser to the company while Simpson Thacher Bartlett acted for JPMorgan.
