Philippine port operator International Container Terminal Services (ICTS) has raised $250 million from the sale of senior unsecured Reg-S 10-year notes. The bonds, which are not rated, priced last Wednesday.
The deal carries a 7.375% fixed-rate coupon and was priced at par, resulting in a yield of 7.375% as well. This was equal to a spread of 365.4bp over the equivalent 10-year US Treasury yield. It was also 185bp wider than the Philippine 2020 sovereign. The ICTS bonds will mature on March 17, 2020.
The issue was treated as a debut placement since ICTS hasn't sold US dollar-denominated bonds since 1997. It is also the first corporate issue from the Philippines this year.
In terms of relative value, most prospective investors used the spread versus the Philippine curve as a reference and investor feedback suggested a yield of 200bp to 225bp over the ROP (Republic of Philippines) curve. One banker close to the deal said "this validated initial pricing thoughts, and the view that there was enough demand at the tighter end of the whisper to justify a tighter initial guidance".
The whisper as the deal was launched was that the yield would be in the mid- to high sevens and initial guidance was then given for a yield in the 7.5% area. With little price sensitivity and strong demand for the bonds, the final guidance could be tightened to 7.375% to 7.5%. In the end, the deal priced at the tight end of guidance at 7.375%.
The overall success of the pricing was mainly attributed to the broader market performance, which saw high-yield bonds in general trade up by one point on Wednesday, ahead of the ICTS pricing. Similar to the Korean bonds that were issued earlier this month (Kexim and Shinhan), ICTS was able to take advantage of a lack of supply post Chinese New Year and a more stable economic backdrop to achieve a relatively smooth execution.
"The technical aspects look to be fairly supportive of the credit, given (a) strong order book, robust local demand and lack of high-yield new issues for the past few weeks," Manjesh Varma, credit analyst at Nomura, wrote in a research note. "However, we see limited upside to the bond from the current levels and think it is unlikely to outperform over the medium term," he added.
HSBC and J.P. Morgan were joint bookrunners for the deal. The deal was six times subscribed -- the order book amounted to approximately $1.5 billion -- with participation from more than 125 accounts. Banks were allocated 47%, which was the biggest piece of the pie. Next to follow were asset managers with 32%, retail investors with 12%, hedge funds with 7%, and insurance companies and corporates plus others with 1% each.
Forty percent of the deal went to onshore accounts, which is a common theme for Philippine deals. That said, one source noted that the quality of the international demand was so strong that the full book could have been placed completely offshore. From the bookrunners' perspective, given that this was an unrated deal from a sub-investment grade country, their overall objective was to get traction with offshore accounts and broaden the investor base. However, the company requested that 40% of the issue be kept onshore.
The rest of Asia was allocated 47%, while European and offshore US investors accounted for 13% of the distribution.
In May 2009, ICTS took out a $150 million three-year amortising loan facility that was used to refinance $250 million of debt that was set to mature in December 2010. The arrangers of the loan included ANZ, Bank of Tokyo-Mitsubishi UFJ, Calyon, Chinatrust Commercial Bank, Citi, HSBC and Mizuho Corporation Bank.
ICTS was incorporated in 1987 in Manila. It is in the business of acquiring, developing, managing and operating container ports and terminals worldwide. In the financial year ending December 2009 its net income fell 15% from $54.9 million. Revenues from port operations dropped 9% to $421.7 million as the top-line income from its key terminals in Manila, Brazil, Poland, Ecuador and Madagascar collectively fell by 12%.
It expected that the proceeds from this deal will be used to fund expansion and to refinance existing debt.