Indika bond attracts 200 investors and prices at tight end

The five-year bond deal generates $3.8 billion in demand and tightens by 19 basis points on the secondary market.
Coal miner PT Indika Inti EnergiÆs B2/B fiveûyear Reg-S non-call life generated $3.8 billion in demand on Friday, pricing at par at 8.5%, at the tight end of revised guidance (8.5%-8.625%). Initial guidance was 8.625%-8.875%. The $250 million transaction is said to be the lowest-priced deal out of Asia with that coupon and rating. The deal was managed by ING and JPMorgan.

The deal attracted 200 investors, with 160 allocated accounts. Half of the bonds were sold to Asian investors, 40% to Europe and 10% to the US. Investor-type breakdown was not available, however, the order book included several $100 million orders. The smallest order came in at $5 million.

The bonds traded to 101.25 on the secondary market, tightening by 19 basis points.

Indika says $40 million of the proceeds will finance power plant constructions, and $60 million will subsidise coal mine acquisitions. The rest will be used to finance existing debt. The funds will be held in an offshore escrow account, until the company identifies its projects.

The companyÆs debt-to-ebitda ratio is 2.4 times.

In terms of comparables, bankers quoted IndonesiaÆs largest coal producer PT Adaro whose December 2010 outsanding bonds (8.5%) are yielding 7.25%. Additionally, PT Berau CoalÆs December 2011s (9.375%) are yielding 7.75%.

Sources say that investors bought this deal for the companyÆs quality coal assets. Indika owns 46% of the Kideko mine, which is generally believed to be the highest-quality mine in Indonesia for the extraction of highly calorific, sub-bituminous coal. Indika is also the lowest-cost producer (of its competitors, including Berau and Adaro) since the mine is located adjacent to the coast, allowing for low transport costs. Kideko also benefits from a very efficient strip ratio û the degree of overburn (or top soil) to be removed before reaching the coal seam.

In addition, Kideko can increase its capacity by 15% without spending any capital. The mine currently produces 19 million tonnes per annum, with enough infrastructure to produce up to 24 million tonnes a year.

Says MoodyÆs: ô"The B2 rating reflects strong dividend cash flows from Indika's 46% shareholding in Kideco, Indonesia's third largest domestic coal producer and one of the world's lowest cost producers and exporters of coal. It also reflects the strong shareholder agreement between Indika and Samtan Co Ltd (Samtan) of South Korea in respect of their majority ownership of Kideco."

Samtan is owned by the largest gas distribution company in Korea, the A-rated Samchilly Group.
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