The noodle manufacturer underlined investors' continuing preference for high yield deals by the right Asian names yesterday (Tuesday) with an increase to its five-year bullet issue. With Credit Suisse First Boston as lead manager, the issue size was upsized from $200 million to $280 million, in the process mitigating any lingering concerns about 2002 re-financing risk and moving the company's debt maturity profile from short to long-term.
The Reg S deal was priced towards the tight end of its 10.5% to 11% indicative range. Terms were finalised on an issue price of 99.05% and coupon of 10.375% to yield 10.625%, or 630bp over five-year Treasuries. ING Barings was co-manager.
One of the most interesting aspects of the B/B3 rated deal was its distribution pattern and in particular the incredibly strong private banking demand out of Singapore, which drove the increase in the issue size. "Indofood has a brand name which every investor knows and respects," one observer comments. "It's the San Miguel of South East Asia."
And as a second commentator jokes, "Indofood is a manufacturer of basic foodstuffs. Its products are as necessary as a daily change in underpants."
With an order book which closed at just over $400 million and a total of 51 investors, final allocations were split 44% funds, 38% private banks and 18% banks. By contrast, Telkomsel's $150 million deal of late April saw 18% placed with funds, 28% with private banks, 30% with banks, 2% with corporates and 22% with insurance funds. These figures are, however, a little skewed by the fact that the cellular operator cut back allocations to asset managers in favour of its domestic banking relationships.
A month earlier, PT Medco Energi saw just 1% of its $100 million deal placed with private banks, while 49% went to funds, 45% to banks and 5% to insurance. Prior to this, the deal which re-opened the Indonesian credit markets - a $125 million FRN for Bank Mandiri in December - saw 13.4% placed with private banks, 4.4% with assets managers, 79% with banks and 3.2% with insurance funds.
In terms of geographical splits, very little of Indofood's deal was placed in Indonesia, with 72% distributed in Asia as a whole, 8% in Europe and 10% with offshore US accounts. Of the Asian demand, Singapore accounted for 61%, Hong Kong 24%, Indonesia 12% and other Asia 3%.
The deal appears to have built upon a pattern whereby each successive deal from Indonesia has been able to attract a wider international investor base. Mandiri's deal saw 60% of its bonds placed onshore, although this was also partly the result of its 20% risk weighting, which meant that it appealed heavily to domestic banks.
Medco was then said to have syndicated 40% onshore, although one very large order booked out of Singapore, meant that the actual amount was much higher. Finally Telkomsel achieved the kind of balanced placement, which the country's top credits should ideally seek, with 40% placed in Indonesia, 54% in Asia and 27% in Europe.
In terms of pricing, fixed income analysts have compared Indofood's transaction favourably to the outstanding sovereign benchmark, which is trading so technically that it barely provides a reference point at all. However, a number of analysts are now predicting that Indonesia will not only see its Selective Default rating lifted once it concludes its London Club rescheduling, but will get a further upgrade from both agencies by the end of the year.
Some houses argue that Telkomsel and now Indofood offer better proxies for improving sentiment toward the sovereign and indeed, the former has continued to trade well over the last couple of weeks. As Indofood began roadshows in late May, Telkomsel's April 2007 issue was bid at 9.9% to yield 540bp over Treasuries. Yesterday the B+/B3 rated deal closed Asian trading at 102% to yield 9.226% bid, or 489bp over Treasuries.
By contrast, Medco has come under some pressure and has moved from a 10.5% bid yield and 610bp Treasury spread on May 28 to a 10.674% yield and 634bp spread yesterday.
As a result of its new bond deal, Indofood can now classify 88% of its debt as long-term. Prior to the issue, it had reported a gross debt position of $621 million and cash position of $115 million. Over the course of 2002, the company had $250 million debt falling due, of which $57 million has already been re-paid and proceeds from the bond issue will be use to re-finance the rest. Net debt to EBITDA currently stands at two times 2002 earnings.
Because 88% of Indofood's revenues are denominated in Rupiah and 60% of its costs are in dollars, the company has historically been very careful to maintain a strict hedging policy. Bankers say that there is swaps cover for 90% of principal re-payments, while annual dollar revenues of $200 million provide four times cover for annual interest payments of roughly $50 million.