Bakrieland launches $150 million convertible bond

The Indonesian property developer is offering bonds with a coupon of up to 8.625% and a conversion premium of 20% to 25%. The deal is expected to price tomorrow.

Indonesia's Bakrieland Development has launched a $150 million convertible bond to raise funds that will be used both for growth capital and to pay down debt. The deal, which marks the small-cap property and infrastructure developer's first approach to the international capital markets, will remain open for about a day-and-a-half and is expected to price on Friday, a source said last night.

The bonds have a five-year maturity, but can be put back to the company on the third anniversary at par. They also have an issuer call after three years, subject to a 130% trigger. They are marketed with a coupon between 7.875% and 8.625% and a conversion premium of 20% to 25%. Credit Suisse is the sole bookrunner.

The premium will be set over a reference price that will be based on the volume-weighted average price in the five days immediately following the pricing (starting next Monday), which means the final conversion price will take into account how the company's Jakarta-listed shares perform in the wake of the CB announcement. Indonesia doesn't require a stock to be suspended during the sale of new equity or debt so the price will be able to adjust to the new issue immediately.

To help ensure sufficient demand for the CB, Credit Suisse will enter into an equity swap with the issuer to create a synthetic stock borrow mechanism that will allow buyers of the CB to hedge the equity option, should they wish to do so. Bakrieland will use part of the proceeds to buy back its own shares in the market for the purpose of this swap -- a move that will also help support the underlying share price. A similar feature was used by Indonesian coal miner Bumi Resources on two separate CBs last year and resulted in deals that were well received by both CB investors and shareholders.

The CBs for Bumi Resources were also arranged by Credit Suisse.

A few hours after the launch of the deal yesterday, the source said there was already good interest from a mix of hedge funds and outright investors. The deal is expected to be quoted in the grey market from today, which will give a firmer indication of whether investors are happy with the indicated terms.

The bookrunner is said to be marketing the deal with a credit spread of 1,300bp over Libor, which compares with 1,000bp and 900bp over for the Bumi trades in July and November last year. Being a smaller company with more leverage, and a less well-known name in the international CB market, Bakrieland should trade wider than Bumi. The only other Indonesian company to sell US dollar CBs this year -- Berlian Laju Tanker -- was marketed with a credit spread of 1,600bp-1,700bp that was partly based on the spread of BLT's outstanding high-yield bond due 2014.

The small-cap Indonesian shipping company raised $100 million from a five-year CB with a three-year put, which featured a 12% coupon and a conversion premium of 10%. J.P. Morgan was a joint bookrunner on the transaction together with RS Platou Markets.

Bakrieland's share price has risen 222% in the past 12 months, although the bulk of those gains came between March and June last year. Since the beginning of this year, the stock has hovered mostly in a range between Rp220 and Rp270. Yesterday it closed at Rp255 after gaining 2% during the session.

The fundraising is unlikely to come as a surprise, since the company has earlier said that it needs Rp1 trillion to Rp2 trillion ($108 million to $216 million) to fund projects this year. In January, Indonesian media quoted the company's president, Hiramsyah Thaib, as saying that the company was planning to raise funds through a rights issue and a US dollar-denominated bond offering.

Local media also reports that the company has been looking for new backers for its Rasuna Epicentrum project in Kuningan, South Jakarta, after its partner Limitless Holdings has struggled to come up with its full share of the money due to debt problems experienced by its parent company Dubai World.

According to the Jakarta Globe, Limitless agreed to pay $110 million for a 30% stake in Bakrieland's city property unit, which is developing the Rasuna Epicentrum. However, so far, Limitless has paid only $37 million, causing Bakrieland to postpone construction. Limitless has been granted an extension on the payments until the end of this month, but at the same time, Bakrieland has approached potential investors in Japan who may be interested in replacing Limitless in the project.

Bakrieland, which was set up in 1990, is part of the Bakrie Group, one of Indonesia's largest conglomerates with businesses spanning oil and gas, mining, telecoms and plantations, as well as the property and infrastructure operations carried out by Bakrieland. The Bakrie Group is controlled by the family of Indonesian politician Aburizal Bakrie.

¬ Haymarket Media Limited. All rights reserved.

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