Lead managers Credit Suisse First Boston, Goldman Sachs and JPMorgan have given Asia's beleagured non-investment grade sector a much needed boost following the successful completion of a $250 million issue for PT Indosat (Thursday). The Reg S 144A seven non-call five deal had an unexpectedly strong investor showing and proved to be a classic example of how to use a small issue size and wide guidance to gain traction and tight pricing.
Having gone out with an initial guidance of around 365bp over Treasuries, the leads narrowed the range to between 325bp and 340bp during the final week, before closing off roadshows early once demand topped a whopping $1.6 billion. Final pricing came in at 99.323%, with a coupon of 7.125% to yield 7.25%, or 326.8bp over the 4.875 Feb 2012 US Treasury. Fees were said to be a miniscule 20bp.
Strong demand enabled the leads to price the deal without a new issue premium to the BB-/B1 rated cellular operator's outstanding November 2010 bond callable in 2008. At the time of pricing, this was being bid at 7.1%. Bankers calculate that the yield curve between 2010 and 2012 is worth roughly 15bp to 20bp.
About 160 investors are said to have participated in the deal, resulting in a distribution split of 45% Asia, 31% Europe and 24% US. By investor type, private banks made up 38%, fund managers picked up 34%, banks 13%, and insurers 12%.
Bankers will be hoping the deal marks a watershed for Asia after three very difficult months. It has also been almost nine months since an Indonesian corporate credit came to market - PT Mitra Global Telekomunikasi Indonesia with a $270 million bond deal.
Indosat's success can in large measure be attributed to the credit standing of the group and the track record it has established in the Asian debt makets. While it may have a high yield rating, it has high grade parentage in the form of Singapore's ST Telemedia, which owns 61%. The Indonesian Government also still owns 16%.
Funds will be primarly directed towards Indosat's large capex programme to expand its cellular coverage. It has outlined a capex need of about $900 million for 2005
After paying down Rp604 billion in maturing long-term debt during the first quarter, Indosat's total debt declined by 4.5%. This meant its debt to EBITDA ratio improved from 1.6 to to 1.4 times.
Over the same time period, Indosat reported a total revenue increase of 13.8% year-on-year to Rp2.87 trillion. EBITDA grew 17% year-on-year to Rp1.61 trillion, despite reporting slower than expected growth.
Indosat stated that it had added 10.2 million new subscribers, an increase of 4.5% quarter-on-quarter. However, its biggest competitor Telkomsel ended the quarter with a reported 17.9 million subscribers, a 9.6% quarter-on-quarter increase.
As a result, Indosat's market share fell to 32.5%.