PT Bukit Makmur Mandiri Utama (Buma) returned to international bond markets for the first time in seven years on Tuesday, pricing a $350 million five non-call three-year deal that performed well in the immediate after-market.
The Ba3/BB- rated company, Indonesia’s second-biggest coal mining contractor, built an order book totaling more than $2.2 billion from 185 accounts, as the recovery in commodity prices and its improving profit margins helped investors overcome their concerns over the company's exposure to recent defaulter PT Berau Coal Energy.
According to its latest quarterly financial results ended Sept. 30, over half of Buma's revenues came from Berau. Buma, which is owned by PT Delta Dunia Makmur, accounted for 70% of Berau's revenues in the first half of 2016.
In July 2015, Berau defaulted on its $450 million 12.5% senior secured notes and has offered 18 cents on the dollar on $950 of outstanding debt.
"The Ba3 rating remains constrained by (Buma's) geographical concentration in Indonesia, single-commodity exposure, and high degree of customer concentration," analysts at Moody's wrote in a research note in January.
Despite that, Buma has a sound liquidity profile. The company had $116 million of cash on hand as of September 2016. That compares with $64 million of debt maturing over the next 12 months.
Buma, which is partly owned by Asian sovereign wealth funds GIC and CIC, launched the 144A/Reg S sale about two weeks after PT Pan Brothers, an Indonesian garment manufacturer, raised $200 million from its maiden US dollar bond, drawing more than $800 million of orders.
“Investors are allocating more money to the beaten-down energy sector after seeing a rather unexpected turnaround of coal prices on a global scale,” a syndicate banker running the deal told FinanceAsia. “In addition to a recovery of commodity prices, the macro condition has improved due to a mix of prudent fiscal policies and sustainable structural reforms.”
“The downside risks have diminished and investors feel comfortable when the company use the fresh proceeds to refinance its outstanding debt rather than for mining explosions,” the banker said.
The price of Australian benchmark coal reached $100 per metric ton in November, more than doubling from $49.8 per metric ton in January. The coal price was settled at $84.06 in January this year.
In a statement on January 17, Delta Dunia said Buma would use the proceeds from the dollar bond sale to help repay loans to Sumitomo Mitsui Banking Corporation and CIMB.
The leads -- Bank of America Merrill Lynch, JP Morgan and Morgan Stanley -- gave the initial guidance on Monday morning at 8.375%, before tightening that to 8%. Final pricing for the February 2022 bond was fixed at 98.986 to yield 8%, according to a term sheet seen by FinanceAsia.
Syndicate bankers couldn't point to any obvious comparable in the secondary market but they said the newly issued bond from single B rated Pan Brothers was a good benchmark. "Pan Brothers' bond was trading at 7.25% and the overall Indonesia names were trading inside 8%," the syndicate banker said.
"The overall coal mining sector was trading at around 8%, so the new deal was priced within the range" the banker said.
The new print traded up on Tuesday, rising to 100.65 to yield 7.6% as more investors piled into the secondary market. "It was a bit surprising to me as there were lots of interest from US investors," a Singapore-based fund manager said.
By geography, investors in Asia were allocated 50% of the deal, while investors in US and Europe Middle East Asia took 34% and 16%, respectively. By investor type, fund managers and hedge funds bought 89%, banks and private banks 9%.