The deal represents the first publicly sold Asian high-yield deal since Arpeni Pratama Ocean LineÆs B+/BB- $160 million seven year non-call four year from Citigroup back on April 25.
The new deal is hopefully a signal that the market is putting behind it the uncertainty it experienced during the summer break when transactions struggled to get to market and mostly had to be restructured or postponed.
Instead, the Ba1/BB+ rated deal has been able to take advantage of the improved stability that has returned to the global bond markets recently. Expectations of a pause in interest rate hikes appear to have made investors slightly less risk averse, while secondary trading has seen a marked tightening of spreads throughout the ratings curve.
The B+/B1 rated deal prices in line with revised guidance and at a size that fulfills the borrowers revised refinancing and general capex requirements. The notes closed at a price of 98.126% with a semi-annual coupon of 10.75% to yield at 11.25%, equivalent to a spread of 654bp over US Treasuries.
The final order book came two-times oversubscribed with 39 investors taking part.
Geographically, the deal was sold 29% into Singapore, 20% into Europe, 15% into Hong Kong, another 15% went to Indonesian accounts, 10% went to US accounts, 7% went to UK-based books with the remaining 4% going to Japan.
By account type, 49% went to fund managers, 27% went to banks, 14% went to corporates, with the remaining 10% going to retail and insurance accounts.
The order book is an interesting mix of investors that are typically unforthcoming with high-yield offerings, giving it a very solid make-up. Usually deals of this kind have a tendency to have a larger percentage of trading accounts or hedge funds, which were noticeably absent from this trade.
Initially, proposed as a $180 million to $230 million transaction, the proceeds were to be used refinance debt, fund further acquisitions and general capex requirements. Specifically $78 million was to be used to repay the outstanding (PT Rajawali Citra Televisi Indonesia) RCTI bridge loan with Deutsche Bank; $48 million to acquire a 39% equity interest in Matahari; $25 million to acquire an additional 25% interest in PT Cipta Televisi Pendidikan Indonesia (TPI) to bring its total equity interest in TPI to 100%; $18 million was to repay 30% of the original principal amount of RCTI's rupiah-denominated fixed rate bonds; $18 million was to repay all amounts outstanding under TPI's rupiah denominated promissory note to Santoro Corp, with the balance going to working capital and other general corporate purposes.
However, investors were not keen on the outlay of the proceeds and as such the borrower opted to use the majority of the downsized proceeds to refinance its debt obligations and drop the proposed purchase of Matahari.
Indeed, it has been a long and arduous road for both borrower and lead managers.
The deal could not have gotten off to a more discouraging start. When the leads sent out feelers asking for price feedback, investor opinion was so diverse that valuations differed by almost 175bp to 200bp.
When roadshows began in late July, the leads set off with indicative guidance in the low 10% range. However, as the deal struggled to build up momentum in an apathetic market, guidance was revised up to 11.25%.
Although the deal lacks any definitive comparables, investors were mostly looking at existing Indonesian high-yield corporates Lippo Karawaci, Davomas and Gajah Tunggal.
LippoÆs deal, a B2/B+ rated $250 million five-year offering completed in March, was quoted at the mid-10% level when MNC priced. However, Lippo can be expected to trade at a tighter level than MNC as it has a higher MoodyÆs rating and is a much larger listed company with a long operating history well known to offshore investors.
Davomas has a five-year $125 million B+ rated deal that matures in 2011. That was trading at 11.30%.
Gajah TunggalÆs deal, a $325 million five-year B2/B deal is trading at 12.25%.
Additionally, the markets were also focused on two other deals that were in the market along with MNC.
Citigroup was marketing a proposed deal for Noble Finance, an Indonesia real estate holding company. That deal, a $150 million five-year single-B (S&P/Fitch) transaction was initially offered to investors in the 11.5% area. Credit Suisse and UBS was in the market with a three-year deal for Indonesian retailer Matahari looking to price at 11%. However, both of those deals have since been shelved.
The market environment that Deutsche and AAA shopped the deal into was a difficult one as investors have taken a guarded view of the Asian debt markets, particularly its high-yield space.
Already under pressure from global uncertainty that has left high-yield issuance barren since April, the market has struggled in the face of problematic reports from issuers that have only recently tapped the market, such as Ocean Grand and Chaoda Modern Agriculture.
Ocean Grand collapsed following the discovery of ôaccounting irregularitiesö that amounted to the company being downgraded to default status. Then reports emerged that Chaoda Modern Agriculture, which sold a $225 million five-year deal in February of 2005, was under investigation after grievances were filed about its product quality standards.
Ocean GrandÆs bonds all but collapsed, and have become a target for distressed debt desks around the region. It launched a $160 million bond in December. ChaodaÆs deal has dropped to the mid-80s range.
However, this may yet turn out to be just the tip of the iceberg; there is an increasing possibility that a number of Asian high-yield credits may not be able to meet their respective debt servicing in the depressed market environment.
As such the market has seen sell-off after sell-off in secondary trading in recent months, while investors have appeared indifferent towards new deals.
Furthermore, the leads have had to contend with investor reservations concerning MNCÆs ownership structure. MNC is owned by the Bimantara Group, a company once controlled by the Suharto family.
However, as the markets find some level of stability and investor concerns over its Suharto connections are debunked, this deal will hopefully provide a measure of optimism and give other potential issuers a viable benchmark in terms of high-yield investor sentiment.
Indeed, taken against the backdrop of a tough market environment the pricing is respectable and when viewed versus the rupiah-equivalent cost is attractive for the borrower.
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