Bakrie Telecom taps existing high-yield bond

The Indonesian telecom company attracts strong demand as it raises a further $130 million by tapping its debut US dollar issue launched in May last year.

Bakrie Telecom (BTEL) has taken advantage of this month’s strong appetite for Asian credits by tapping its existing US dollar bond issue launched in May 2010. The Indonesian firm raised $130 million after a rapid bookbuilding exercise, and priced the new bonds at a slight discount to the outstanding issue late on Monday night.

Although small, the issue provided an alternative to the Chinese names that have dominated the Asian debt capital markets so far this year.

The terms and conditions of the bond are unchanged. The senior, unsecured notes pay a semi-annual 11.5% coupon and mature on May 7, 2015. They were issued by Bakrie Telecom Pte, but guaranteed by BTEL.

The original, debut $250 million issue performed strongly last year, trading to a hefty premium and was bid at 107.75 on Monday. Initial price talk for the tap was as low as 106.25, but demand was strong enough for the lead managers, Credit Suisse (also the sole global coordinator) and Morgan Stanley, to re-offer the bonds at 107. That gave a yield of 9.46%

The proceeds will be used in a variety of ways. BTEL expects to refinance a $30 million bank loan owed to Credit Suisse and $50 million in equipment vendor payables owed to Chinese supplier Huawei. The residue will mainly be used for future capital spending.

Yet, even after the issue, the company’s debt will be higher than what it reported in September 2010, now reaching Rp6.322 trillion ($708.5 million). According to sources familiar with the transaction, Bakrie was restrained from raising more cash from the tap in case it breached interest coverage ratios. Standard & Poor’s reaffirmed its single-B credit rating.

In addition to the parent guarantee provided by PT Bakrie Telecom, subsidiary guarantees have been made by PT Bakrie Connectivity and PT Bakrie Network.

Investors can exercise a change-of-control put at a price of 101 -- which in the competitive and crowded Indonesian telecom market is not an academic option. But, investors were confident that any merger or acquisition isn’t imminent and were prepared to pay the big premium to par value.

The deal was 7.5 times subscribed and attracted demand from more than 90 individual accounts – of which many were existing holders. The SEC 144A notes found an especially strong bid from US investors, who were allocated 38%, although Asian investors took the biggest slice of the pie, with 49%. The remaining 13% was placed in Europe.

By investor type, fund managers bought 65%, insurance companies 18% and commercial banks 15%, while 2% was sold to private banks.

The original redemption options for Bakrie Telecom have been retained. At any time before May 7, 2013, it can redeem up to 35% of the notes at a price of 111.5%, using net cash proceeds from equity sales. After that date, the company can buy back all or part of the issue: at 105.75 in 2013 and 102.875 in 2014.

In Hong Kong trading yesterday, the bonds were quoted at 108.25/108.75, fuelled by under-allocated investors trying to meet their targeted holdings.

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