Convertible from Indonesia's BLT receives strong demand

The issue comes on the heels of a successful high-yield offering two weeks ago and adds further cash for ship acquisitions and debt repayment.
PT Berlian Laju Tanker (BLT) has raised $125 million from the latest in a string of convertible bond issues. The deal was well received by investors who welcomed the rare opportunity to buy exposure to Indonesia.

The CB, which was completed in the early hours of Wednesday morning, is part of a multi-legged fund raising programme by the company to repay outstanding debt and comes two weeks after it raised $400 million from a high-yield bond that was doubled in size following strong demand. BLT is also in the process of selling 600 million rupiah ($6.7 million) worth of domestic bonds.

The CB was issued by BLT Finance, but fully guaranteed by BLT. Deutsche Bank and JPMorgan were joint bookrunners both on the CB and on the high-yield bond.

According to the term sheet, the proceeds from the CB will be used both towards debt repayment and to acquire new vessels. BLT is the controlling shareholder of IndonesiaÆs largest liquid cargo shipping company and focuses on the transport of chemicals, oil (including palm oil) and gas in Asia, the Middle East and Europe. Its customers include major international companies like Pertamina, Exxon Mobil, Shell, BASF, Celanese, Dow Chemical and SABIC.

The company in October last year became the first Indonesian company to achieve a dual primary listing in Singapore after completing a $117 million initial public offering in the city-state. The CB was priced over the Singapore-listed shares, which are fully fungible with the Jakarta-listed stock.

The zero-coupon bonds, which were issued at par, have a five-year maturity but can be put back to the issuer at the third anniversary for a yield to put of 5.25%. The yield was fixed inside the wide end of the offered range of 4.75% to 5.45%.

The conversion premium was offered at 45% to 50% over the S$0.3366 volume-weighted average price of the companyÆs Singapore-listed shares on TuesdayÆs (May 8) and fixed at the 47.5% mid-point for a conversion price of S$0.4965. The share price was quite steady on the day and the VWAP was virtually identical to the closing price of 0.335, resulting in no difference between the actual and the effective conversion premium.

There is an issuer call after two years, subject to a hurdle of 125%, to force early conversion.

Aside from the otherwise very clean structure, the CB does have one additional protection feature which relates to the fact that the bonds are convertible into treasury shares. However, the number of treasury shares currently held by the company is too few to cover a conversion of all the bonds into shares and as a result BLT will put enough of the proceeds into a US-dollar escrow account to make up the difference between what it currently holds and 130% of the share purchase amount. There are top up and top down clauses to maintain the account at that level as the share price moves, but the company may also choose to buy back additional shares in the market to make up the current shortfall.

The same structure was used on BLTÆs first CB back in December 2005, which was arranged by Deutsche on a sole basis.

The bookrunners provided no bid for the credit as this is widely available in the market on the account of the liquid trading of the high yield bond, which has a seven-year, non-call-five structure. However, they were said to have assumed a credit spread of 210 basis points over the three-year Singapore dollar swaps as a reference for the pricing. BLT is rated BB- by Standard & PoorÆs and Fitch.

Other assumptions included a dividend yield protection above 2.5% and a 5% stock borrow cost. Those inputs gave a bond floor of about 95% and an implied volatility of 34.6%. While somewhat academic, the latter compares with a 100-day volatility of 40%.

According to sources, the deal was multiple times covered with close to 50 participating accounts and with the size being only $125 million, many investors ended up with quite small allocations. It wasnÆt too surprising therefore that the bonds traded up to around 101.5% in the aftermarket yesterday as some people tried to top-up their holdings.

While obviously not as large in absolute terms, the interest mirrored that seen for the high-yield bond two weeks earlier which drew $4 billion worth of demand for an initial size of only $200 million.

ôThere is a lot of demand for Indonesian paper û just look at the oversubscription for the high-yield bond. And the equity market is on fire there,ö says one observer, referring to the 21.5% gain in the Jakarta composite index since mid-January. The index has rallied about 65% from the lows in July last year.

The CB investors were also believed to have been attracted by BLTÆs strong growth profile and its diversified business mix, which the management believes allows it to maintain consistent growth even during a downturn as the business cycles of chemical, oil and gas are not directly correlated.

Since the listing in Singapore at S$0.32, the share price has fluctuated in a range between S$0.275 and S$0.345. Since early March, however, the stock has been on a steadily rising course, adding about 22% from the bottom of that range to S$0.335 at present. The share price was unchanged yesterday in the wake of the CB sale.

This is the first publicly marketed convertible by an Indonesian issuer this year and only the third since the Asian financial crisis in 1997, explaining the interest from CB specialists in particular. It follows BLTÆs own $50 million inaugural issue in December 2005, which was arranged by Deutsche Bank, and a $177 million CB by oil and gas producer PT Medco Energi in May last year that was brought to market by Deutsche and Credit Suisse.

Two weeks ago, Credit Suisse was forced to withdraw a $300 million CB for Indonesian coal miner PT Bumi Resources after investors found some of the terms too aggressive, including the fact that they wouldnÆt be compensated for a possible special dividend following the completion of an ongoing coal mine divestment.
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