Following a slight delay to allow investors extra time to conduct due diligence, sole book runner UBS priced a downsized five-year callable bond for debutant G-Steel of Thailand in New York on Monday (September 26). The final issue size for the B1/B+ rated, Reg-S bond was set at $100 million compared to initial estimates around the $150 million level.
The notes were priced at 98.116% with a coupon of 10.5% to yield at 11%, equivalent to about 688bp over US Treasuries. The deal had been shopped to investors with a coupon of 11%.
The notes are callable at 105.25% in 2008 and 102.625% in 2009. The first two coupon payments will also be placed in an escrow account, with a single rolling coupon in escrow thereafter for the duration of the bond.
Fees were a fair 1.75%
The final book is said to have closed at the $165 million level with a total of 40 accounts allocated paper. US-offshore accounts made up the majority, buying 44% of the total book. Asian accounts bought 27%, with the remaining 29% heading to Europe.
In terms of investor type, asset managers were the principal buyers on 77%, with retail accounting for 21% and banks the remaining 2%.
Comparables are difficult given the rarity of offshore high-yield Thai debt, but observers familiar with the deal said investors primarily looked to US-based AK Steel's 2009 offering. The integrated steel company is similarly rated at B1/B+ and is currently trading in the 500bp over Treasuries range on an absolute yield of 8.78%.
This means G-Steel has paid up roughly 200bp for a deal that is only one-year longer in maturity. Typically Asian deals will come at a premium to their US comps, particularly in the high yield sector, although this is still fairly steep.
The deal also looks cheap relative to similarly rated Asian comps. B1/B+ rated Titan Petrochemicals, for example, has a two year longer bond outstanding that is currenty yielding about 9.1%.
Slightly further down the ratings scale is B2/B rated Gajah Tunggal, which has the highest yielding oustanding Indonesian dollar bond. The tire manufacturer's $325 million 10.25% five-year bond is currently trading at about 10.75% on a mid-price of 98%.
This represents a slight widening from its 10.375% lauunch spread in late July and may go some way to explaining why G-Steel faced an uphill task with investors.
Like Gajah Tunggal, G-Steel is also a restrcuturing story. The company staggered during the Asian financial crisis and underwent a series of unsuccessful attempts to restructure its debt profile before completing a major debt and capital restructuring program in 2003. Following the completion of restructuring, G-Steel reduced its debt ten-fold from Bt63 billion ($1.5 billion) to Bt6.7 billion ($1.6 million). The total aggregate outstanding debt was further reduced through capital raising ventures to the current Bt1.2 billion ($30 million) level.
G-Steel is one of Thailand's leading producers of hot-rolled coil, which is used in the production of cold-rolled coil, hot-dipped galvanized sheet metal, steel pipes and sheet used primarily in the construction and automotive industries. G-Steel operates a mini-mill located 180km outside of Bangkok. It uses two electric furnaces arc and two ladel heat furnaces with a design capacity of 12.8MTPA and an effective capacity of 1.5MTPA.
The company recorded total revenue of Bt22 billion ($537 million) in 2004, with net earnings of Bt 9 billion ($219 million). As of June, total assets amounted to Bt 23 billion ($700 million) with total liabilities of BT2.4 billion ($59 million).
Use of proceeds will be used for the expansion of its steel production facilities.
However, the notes went on to trade steadily on their debut yesterday (September 27) in 98.375% to 98.875% range.