After delays and several weeks of negotiations with nervous investors, PT Bukit Makmur Mandiri Utama (Buma), Indonesia's second biggest coal mining contractor, finally priced a $315 million bond deal on Wednesday afternoon New York-time.
But the company was forced to pay a hefty 11.75% coupon to compensate for the leveraged nature of a concurrent share sale and takeover and, perhaps, for the complexity and relatively opaque nature of that takeover. Investors had also been anxious about the role of Hendrik Tee, a former chief financial officer at Asia Pulp & Paper, which famously defaulted on $12 billion of debt in 2001. Tee has allegedly been advising Johan Lensa, Buma's founder and controlling shareholder.
People familiar with the bond transaction couldn't point to any obvious comparable issues in the secondary market.
However, fellow Indonesian coal miner Indika Energy is paying a coupon of just 9.75% for a $230 million seven-year (non-call for four years) deal that priced yesterday through Citi as the sole bookrunner. Indika is rated B2 by Moody's and B+ by Standard and Poor's, which are two notches lower than Buma's split ratings of Ba3 and BB. And PT Adaro, Indonesia's second biggest coal miner, raised $800 million from a blowout 10-year bond issue in mid-October, which paid a yield of only 7.75% (the coupon was 7.625%). The Adaro bond is rated Ba1 by Moody's and BB+ by Fitch.
Investors in the Buma deal had insisted on a capital structure that included a large, covenant-heavy loan component in addition to the bond issue, in order to bring in banks which will ensure those covenants are maintained rather than just monitored, and which will apply continuous assessment through their credit matrices. The covenants include a fixed charge coverage ratio of three-times, restrictions on dividend payments, and limits on the types of transactions the company's affiliates can engage in.
The issuer of the bonds is a Singapore special purpose vehicle (SPV) called Prime Dig Pte, which is guaranteed by Buma. The bonds were re-offered at par and mature on November 3, 2014, but can be called after three years at 105.875, and in 2013 and thereafter at 102.9375. In weak credit markets yesterday, they were trading at 99.625-99.75.
The company's operating agreement with a key customer, Berau Coal, will extend at least a month beyond the maturity date of the bonds.
Simultaneously, Buma raised $285 million from a global syndicated loan arranged by Barclays Bank. The aggregate proceeds from the bond and the new loan will be used to repay an outstanding loan from Sumitomo Mitsui Banking Corporation and to buy out existing Buma shareholders. The combined yield of the bond issue and the syndicated loan was reported to be 9.46%.
Unlisted Buma is in the process of being acquired by Jakarta-listed Delta Dunia, a property company that is expanding into natural resources. At the same time, Northstar Pacific Partners, an Indonesian private equity firm which is the local affiliate of Texas-based TPG Capital, has agreed to pay $400 million for a 40% controlling stake in Delta Dunia. The terms of the bond deal allow Northstar to reduce its holding in Delta over time.
As part of the takeover, a 38% stake in Buma will also be offered to investors via an equity placement. All parts of the transaction should be completed next week.
The bookrunners -- Barclays Capital, Deutsche Bank and ING -- sold the bonds to US investors under the SEC Rule 144A and to international accounts through Reg-S. Final orders amounted to $900 million, placed by 118 accounts. Geographically, 46% was sold into the US, 36% into Asia and 18% into Europe. By investor-type, asset managers bought the bulk of the deal, with a 59% allocation, banks took 28%, retail clients bought 11% and the remaining 2% went to others.
Indonesia has attracted enthusiastic attention from investors in recent months. A positive election result for incumbent President Susilo Bambang Yudhoyono in the summer, improved sentiment for commodities, and projections of 4% GDP growth this year has led to a 73% rise in the Jakarta stock market so far this year.