APOL sails into international debt capital markets

Indonesian Shipper prices dollar deal inside of guidance on the back of a huge order book.
IndonesiaÆs second largest shipping company, Arpeni Pratama Ocean Line (APOL) accessed the international debt markets for the first time with a hugely oversubscribed $160 million seven year non-call four year RegS / 144A bond offering via sole lead manager Citigroup on Tuesday (April 25).

The B+/BB- (Fitch) rated issuer was able to close the deal ahead of schedule and price well inside of initial guidance after building an order book of $1.3 billion.

Roadshows kicked off in Singapore, Hong Kong and London last week, with investor showcases in the US scheduled for Monday and Tuesday. However a swift build up of the order book prompted the lead to cancel meetings on Tuesday and price ahead of schedule.

Initial price guidance was released just prior to MondayÆs investor meeting at 9.125%, and already by that time the books had surpassed $1 billion in orders.

Pricing came well inside of initial guidance and was finalised at 98.976% on a coupon of 8.75%, to yield at 8.95%, equating to spread of 401.4bp over the February 2013 US Treasury.

About 98 investors participated in the deal. By geography 30% of demand came from Hong Kong, 28% from Europe, 20% from Singapore, 18% from the US, and 4% went to domestic investors.

In terms of investor type, fund managers took the lions share at 67%, banks 18%, private banks 10%, with 5% heading to others.

In 2005, APOL reported a revenue of Rp1168 billion ($120 million) and a net income of Rp169 billion ($18 million). APOL maintains a relatively restrained balance sheet. Its debt to Ebitda ratio in 2004 was 2.1 times, rising to 2.6 times in 2005. However, this new deal will increase that ratio to 3.3-times.

In its most recent ratins report, Fitch noted: ôArpeniÆs ratings draw support from its long-term contract oriented business model, which provides earnings visibility and insulates the company from volatile shipping cycles. In 2005, about 70% of ArpeniÆs revenue and EBITDA were based on long-term contracts that had either very low or no linkage to the international freight rates. Fitch notes that in its dry bulk business, Arpeni has had long contractual relationships with coal mining companies to provide domestic sea-borne transportation of coal to power plants. These contracts allow Arpeni to earn a fixed margin as the cost of fuel, the key variable cost, is passed through to its customers. Arpeni has also chartered out three of its liquid carriers to Pertamina, the state owned oil major, for a 10 year period.

"The ratings are also supported by ArpeniÆs position as the largest dry bulk operator and the second largest shipping company in Indonesia. Arpeni is well-positioned to capture growth prospects arising from the ongoing implementation of the cabotage principle in Indonesia, which would make it mandatory for all domestic shipping to be carried out by Indonesian flagged vessels. All government owned entities would also have to use Indonesian-flagged vessels for international shipping. Moreover, Arpeni is the only end-to-end solution provider for domestic transportation of coal. Arpeni has a range of barges, tugboats and floating cranes, which are essential in transporting coal since most ports in
Indonesia lack adequate coal handling facilities. Arpeni is also the only operator of Indonesian-flagged Panamax vessels.ö

The proceeds from the bond sale will go toward refinancing some existing debt, capital spending and for vessel financing.
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