Indonesian shipping company brings $100 million CB

Berlian Laju Tanker replenishes its coffers ahead of an expected convertible put in May and as it pursues the acquisition of a Norwegian liquid tanker company.

Berlian Laju Tanker (BLT), a small-cap Indonesian shipping company, has raised $100 million from a five-year convertible bond that was well received by investors. The company is a true high-yield issuer -- it has a credit spread closer to 2,000bp than 1,000bp and a B rating from Standard & Poor's and Fitch -- and the shipping sector is still clouded by uncertainty, but the downside protection offered by the CB appeared to provide enough comfort to get investors to open their purse strings.

It would have helped, however, that the conversion premium was set at a modest 10% and there is a one-time reset after six months. The conversion premium and the coupon were both fixed at best terms for investors, in light of the fact that the orders were price sensitive.

Even so, it is not a bad effort for a company with a market capitalisation of about $425 million to pull off a $100 million CB. According to a source, the deal was well oversubscribed at the original deal size of $75 million, allowing the bookrunners to exercise half of the available upsize option and increase the deal to $100 million.

Despite the upsize, the CB traded up to about 102 in late Asian trade yesterday and the share price also fared well, gaining 1.5% to Rs680.

Slightly more than half of the demand came from Europe, with Asian investors contributing the rest. The split between outright and hedge fund investors was about 60:40, although with the CB being virtually unhedgeable, it is fair to assume that it was BLT's equity prospects that drove buyers' investment decisions, rather than the technical aspects of the bonds.

Berlian Laju Tanker is in the process of trying to acquire Norwegian shipping company Camillo Eitzen & Co. If the transaction is successful, the deal would be transformational for BLT both in terms of size and improved business access. A liquid cargo specialist, BLT is already one of the largest chemical tanker operators in the world with a fleet that comprises 63 chemical tankers (plus 10 new-builds), 14 oil tankers and 13 gas tankers (plus four new-builds), according to an earlier filing by BLT. However, Camillo too is one of the largest owners of chemical ships in the world based on number of vessels, and also operates in other segments of the gas, bulk and tanker markets.

Aside from this acquisition, BLT also has a need to raise fresh capital to cover the expected put in May of an outstanding $125 million CB, which is currently out-of-the-money.

The new CB was offered with a coupon between 10% and 12%, which was later fixed at 12%. The deal has a par-in, par-out structure, which means the coupon and then yield are the same. The premium was offered at 10% to 15%, and fixed at 10% over Tuesday's closing price of Rs670. Aside from the fact that it makes the deal more palatable to investors, the low premium was also a result of company wanting a deal that was as equity-like as possible. BLT had earlier indicated that it wanted to fund the Norwegian acquisition with an exchangeable that would be mandatorily converted into shares, but the regulators said no to that kind of structure

The bonds have a five-year maturity, but can be put back to the issuer after three years. There is also an issuer call after three years, subject to a 130% trigger.

If the share price (specifically the volume-weighted average price) is trading below the conversion price six months after the closing of the deal, the conversion price will be reset to correspond to the market price, which is defined as the VWAP in the 20 days leading up to the six-month date. The reset cannot go below 80% of the conversion price at the time.

The CB was marketed with a credit spread of 1,600bp to 1,700bp, which was partly based on the spread of BLT's outstanding high-yield bond due 2014. Other assumptions included a 5% stock borrow cost and protection for dividend yields above 0.75%.

According to the source, this gave a bond floor of about 85% and an implied volatility of 25%, numbers which were arrived at after taking the reset feature into account.

J.P. Morgan was a joint bookrunner on the transaction together with RS Platou Markets. The latter firm is also acting as a financial adviser to BLT with respect to the acquisition of Camillo. 

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