South East Asia's largest tyre manufacturer PT Gajah Tunggal accessed the debt markets for the first time since its 2002 restructuring yesterday (July 14) with a $325 million five-year deal via Credit Suisse First Boston and UBS. After a two-week roadshow, the B2/B rated group was able to increase its prospective deal size from $250 million after building an order book of $550 million.
Pricing came at 99.522% on a coupon of 10.25% to yield 10.375% or 642.5bp over Treasuries. Fees were 1%.
The deal will now rank as the highest yielding corporate credit from Indonesia by some margin. Most of the country's outstanding corporate deals are trading around the 7.5% to 8% area.
For example, MGTI's 8.375% 2010 deal is currently bid around 355bp over Treasuries or a yield of around 7.5%, while PT Medco's 8.75% May 2010 deal is bid around 413bp over or an 8.08% yield.
Like Hynix a few weeks before it, Gajah Tunggal is paying a high price for its history. Unlike Hynix, its bond is not likely to see the same level of tightening during secondary market trading. While bond investors are now prepared to look at restructured Indonesian credits again, the sector has yet to prove its consistency.
The Nursalim-owned Gajah Tunggal group ranked as one of Indonesia's most heavily geared borrowers prior to the financial crisis and ended up in a CSFB led debt restructuring, completed in 2002. Proceeds from the new deal are being used to re-finance $221 million of this debt and free the group from restrictive covenants that require full lenders' consent before it can engage in new capex.
The new deal will also term out the group's maturity profile from 2008 to 2010. Analysts say there will now be just $96.5 million of debt that still falls due in 2008 and 2009.
The remaining $100 million is being used to fund the group's $180 million capex programme to expand its tyre making operations in Indonesia. As such, the agencies say the group is unlikely to see its rating upgraded over the near-term and may get downgraded if its EBITDA interest coverage ratio falls below 1.5 times. They estimate it will stand at three times post deal.
About 97 investors participated in the bond deal. By geography about 42% of demand came from Europe, 25% from Hong Kong, 24% from Singapore and the remainder from the US. By investor type, asset managers took 74%, banks 15% and private banks 11%.
The distribution statistics show a high preponderance of fund managers attracted by the bond's high yield and a low preponderance of Indonesian investors. Bankers hope a stable secondary market trading pattern will give local investors confidence to move back into the credit and re-open some of its domestic funding lines.