Merrill Lynch has priced the first Indonesian cross-border securitization since the Asian financial crisis with a landmark $600 million 3.1-year Series-1 future flow securitization for PT Bumi Resources mining units, PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia.
The BBB- (Fitch) deal was priced yesterday (June 23) at par with a coupon of 7.134% to yield 350bp over three-year US Treasuries. The deal closed at the wide end of projected price talk of 325bp to 350bp over.
The order book is said to have closed at the $900 million level - an oversubscription ratio of 1.5 times. It was allocated to 75 accounts made up of asset managers, private banks, and commercial banks insurers. Geographically the deal was split 48% US, 35% Asia, and the remaining 17% Europe.
The investor base was said to be very price sensitive, particularly after US treasuries traded off by 8bp to 9bp prior to pricing. However most observers are waiting to see how the deal fairs in secondary trading.
This is Indonesia's largest non-sovereign deal and effectively re-opens a cross-border securitization market that had been mothballed since a $144 million FSA-wrapped motorcycle ABS for Putra Surya Multidana on the eve of the Asian financial crisis in late 1997.
Indonesia has been on the radar screens for most securitization bankers for some time now. The deal has, nevertheless, come as a surprise to many. Partly this has centred on whether Merrill could successfully sell a BBB- Indonesian credit of such a size.
So too, there had been concerns whether investors would be receptive to a deal owned by a group linked to Aburizal Bakrie, currently the country's chief economics minister and a long time ally of the Suharto regime. The 2001 restructuring of Bakrie group debt is often flagged as a prime example of the difficulties foreign creditors may encounter trying to negotiate terms in a country with the risk profile of Indonesia.
Merrill acted as the structural advisor for the current securitization, and was joint lead manager with local bank PT Danatama Makmur.
The transaction, issued via special purpose vehicle Indocoal Exports (Cayman) Ltd, has a Reg-S 114A FRN structure with a legal final maturity of July 2012.
The deal has a front-loaded amortization schedule; whereby 60% of the principle is paid in the first three-years and 40% amortized over the remaining four years. The heavily front-loaded structure helps to mitigate future volatility in coal prices over the longer-term.
The notes are backed by all existing and future accounts receivables arising from the sale of coal from KPC and Arutmin.
Pursuant to Indonesian regulations, KPC and Arutmin will transfer their respective rights and responsibilities of their respective coal concessions or Coal Contracts of Work (CCOW) granted by the government of Indonesia over to two newly established Indonesian incorporated SPV's, PT Indocoal Kaltim Resources and PT Indocoal Kalsel Resources. Both are wholly own subsidiaries of PT Bumi Resources.
The seller parties will then enter into a seven-year coal supply contract with the Cayman Island SPV, Indocoal Exports, where by the SPV will then sell the coal it purchases directly to obligors. To fund the purchase of the receivables, Indocoal will sell the securitized notes to capital market investors.
Kaltim and Arutmin are the second and fourth largest coal producers in the country respectively and account for some 29% of Indonesian coal production. Both are subsidiaries of PT Bumi Resources. Combined, they generated $1.1 billion in net sales last year, with an operating income of $2.93 million. As of March 31, Kaltim and Arutmin had a combined proven and probable marketable reserve of 959mt.
In February, Bumi hired Merrill Lynch to advise on its funding plans in order to facilitate a further expansion of its mining operations. Bumi is hoping to be in a position to take advantage of the robust coal prices and demand in the region from the rising number of coal-fired power plants, especially in China.
Sidley Austin and Mochtar Karuwin Komar represented Merrill, and White & Case and Ali Budiardjo Negroho Reksodiputro acted for the issuer. Venture Law is the Singapore listing agent.