Credit Suisse First Boston priced a $150 million high yield deal for Indonesian gas transportation company, PT Perusahaan Gas Negara (PGN) yesterday (Wednesday). Having been launched on a base deal size of $150 million, the transaction was not increased to the $200 million level originally flagged to the market and closed about one-and-a-half times covered with a strong local flavour.
About 50 accounts participated, with no individual order topping $25 million. Unsurprisingly, Indonesia accounted for two-thirds of demand, with the remaining third coming from offshore. Of this latter amount, Singapore comprised about 50%, the rest of Asia a further 20% to 30% and Europe about 10%. By account type, banks took 40%, private banks 30% and funds the remaining 30%.
Pricing of the deal was held firm at the level the transaction had been marketed at in late July/early August. Since then a bomb blast in Jakarta and Treasury volatility have played havoc with Indonesian spreads. However, PGN was able to clear its 10 put seven deal at 98.669% on a coupon of 7.5% to yield 7.75% or 319bp over 10-year Treasuries. Fees total 1.5%
Bankers cite E&P company PT Medco and noodle manufacturer PT Indofood as the two best comparables. PGN is currently 100% government-owned and has the sovereign's B3/B- rating, but is said to operate along more independent lines than a lot of state-owned entities and is subject to the same regulatory risk as Medco, which has a two notch higher rating from Standard & Poor's.
Medco's colourful corporate history means that its deal tends to lag Indonesian spread performance and is always the first to get hit by any bad news. Pre-bombing, for example, its 8.75% April 2008 deal was being quoted at 7.8%. Post bombing and post Treasury yield spike, it widened out to 9.41%. Yesterday, it was being quoted at 8.97% or 437bp over 10-year Treasuries.
Indofood has a one notch higher rating than PGN on the S&P side and a 10.38% June 2007 bond trading yesterday at 8.25% or 25bp over five-year Treasuries.
In its favour, PGN has a largely dollar denominated balance sheet and gathering momentum behind it because of its forthcoming privatization, which will reduce the government's stake by about 25% over the course of the next couple of months. It is also the major partner in the ambitious 536km Grissik-Singapore pipeline, which is expected to transport $9 billion in natural gas to the City State over a 22-year period.
PGN holds 60% of Transportasi Gas Indonesia (TGI), the company building the pipeline, with the remaining 40% held by the Transasia consortium led by Petronas and Conoco. In order to protect investors from a build-up of debt at the operating company level, the new deal has a $30 million cap on subsidiary indebtedness.
Next to access the offshore market will be PT Aneka Tambang (Antam), which begins roadshows on Friday in Hong Kong for a $200 million deal. Presentations will then move to Singapore on Monday and London on Tuesday, with scheduled shortly after.
ABN AMRO is lead manager of the seven-year deal with a four-year call option. Antam is said to have chosen this structure because it does not want to incur negative cost of carry if all of its projected capital expenditure does not go ahead. Proceeds from its forthcoming deal are being used to fund a nickel smelting plant and a power station.
Antam is currently 65% government-owned and has the sovereign B3 rating from Moody's, but a one notch higher rating of B from Standard & Poor's. It is also rated AA- by local rating agency Pefindo, which cited its low cost structure and strong financial profile in a rating release from October last year.
One of the world's lowest cost producers, Antam derives about 63% of its revenues from nickel, 27% from gold, 8% from bauxite and 2% from iron sand.