ABN AMRO closed a $200 million debut international bond offering for PT Aneka Tambang (Antam) during Asia's morning yesterday (Tuesday). The deal was completed after a few days delay and at the outer end of a revised indicative pricing range. However, the order book shows a transaction that appears to have appealed to a wide variety of accounts and pricing remains tight against comparables.
With a seven-year final maturity and call option in year four, the deal was priced at 97.348% on a coupon of 7.375% and yield of 7.875%. It is callable in September 2007 at 103.688%. Fees totaled 70 cents and Mandiri Sekuritas acted as joint-lead.
Observers say there are two main comparables, PT Indofood and Freeport McMoRan, a US company, which owns PT Freeport Indonesia. The former has the same B3/B rating as Antam, but is the less perfect comparable as it operates in a different industry (noodles), has no government-ownership and less dollar denominated revenues. During Asian trading yesterday, its 10.38% June 2007 bond was being quoted on a yield around the 8.09% mark.
Freeport McMoRan, on the other hand, is also a mining company and has the same rating as Antam from Standard & Poor's, though a one notch higher rating from Moody's. It's 10.125% February 2010 bond is also callable in 2007 and currently yielding about 8.05%. But as one observer says, "This deal is currently bid around the 109% level and there have been no offers in the market for some time. So it's difficult for an investor to find bonds in any size and they would have to pay a significant premium above par."
Antam is said to have attracted an order book of 68 accounts, with the majority of investors placing orders in the $5 million to $10 million range. Only two orders were in the $20 million to $25 range.
"Trading accounts taking a momentum view were completely absent," says one observer. "The froth has gone and domestic accounts are also less interested in dollar denominated paper, because the Rupiah is appreciating and domestic yields are coming down. There's still appetite for offshore deals, but the overall environment is difficult and you need the right credit story."
By the time the deal priced on Tuesday morning, the order book is said to have closed at the $265 million mark, with a further $100 million orders pending credit approval. Observers say the deal was initially held over from its Thursday pricing date, because a lot of accounts were still finalising credit approvals. Public holidays on Friday necessitated holding the deal over the weekend, only to be followed by a marathon pricing meeting on the Monday.
Final splits show that 58% went to Indonesia, 10% each to Singapore and Hong Kong, 12% to Europe, 5% to the rest of Asia and 5% to offshore US. By account type, banks (including private banks) accounted for just over half the deal, with asset managers taking 30%, insurance funds 5% and pension funds 5%.
Rival bankers have suggested Antam would prove a difficult sell because the deal size is small and the credit not well known. Its credit fundamentals, however, would suggest the opposite to be the case.
Firstly the deal has rarity value, since the company has never accessed the international debt markets before and is unlikely to do much in the future. Proceeds from the current offering are being used to fund a specific project - phase three of a nickel smelting plant in South Sulawesi. Prior to this, Antam ran a net cash position.
Secondly, unlike many prospective offshore borrowers, dollars is a natural hedge for the company. About 98% of its revenues are said to be dollar denominated.
Further comfort is likely to be derived from its listing on the Australian Stock Exchange, which has stringent accounting and reporting requirements for the many natural resources companies listed there. Antam, for example, is 65% government-owned, but has an independent board of directors.
Like many recent Indonesian bond issues, covenants are few and far between. However, should government ownership fall below 50%, the deal can be put at par.