IOI Corp taps market for loan in place of CB

IOI opts for the cheapest funding route with a direct replacement of an Eu230 million bridge facility.

Mandated arranger Citigroup has been joined by senior co-arranger ING at the launch of an Eu230 million five-year syndicated loan for Malaysia's IOI Corp Bhd. The new transaction will take out an Eu230 million nine month bridge facility completed in November last year by ABN AMRO and Citigroup. That credit funded the purchase of Loders Croklaan, a leading supplier of specialty oils and fats for the food industry.

Earlier in the year it had been rumoured that the bridge would be refinanced via an Eu 80 million to Eu100 million convertible bond. However, while IOI Corp has yet to officially scrap plans for an equity-linked issue, observers believe it is unlikely to proceed.

Banks interested in joining the loan will earn a margin of 85.5bp over Euribor. Fees to the market have been offered on three levels. Co-arrangers pledging Eu25 million or more gain 12bp, lead managers contributing Eu15 million to Eu24 million receive 9bp and co-lead managers signing up with Eu10 million tickets will be paid 7bp.

Dealogic figures show that the original credit paid a step up margin for an annualised all-in of 116.6bp for the first six months, increasing to 136.6bp thereafter. This new financing pays a top tier all-in of just 88.9bp for an average life of 3.55 years, a substantial reduction on the initial deal.

Bankers looking at the transaction were surprised that the refinancing could be priced so far inside the bridge given the longer tenor. In addition the Sars virus currently sweeping the region is causing uncertainty in the market and some believe this may hamper the success of the deal.

However one market observer says that although pricing is tight, there should nevertheless be significant interest in the deal. The company is a strong credit, rated AA3/P1 by RAM (Rating Agency of Malaysia), and recently announced a pre-tax profit of M$414.2m for 2002, double that recorded in 2001.

Others argue that while there will doubtless be interest, they do not think it will be enough to cover the whole book. ABN and Citigroup achieved a sell down of some 50% of the original bridge, with three Malaysian banks and one foreign institution signing up after a two month long syndication process.

IOI Corp has recently undergone an aggressive expansion plan and at the end of March announced a proposed acquisition of five companies owning 14 oil palm plantations covering a total of 21,722ha and a mill operation in Sabah, Malaysia for a sum of M$607.7 million.

The transaction will be paid for through the issuance of 81.8m new IOI Corp shares at M$5.2 per share to related parties and M$182.3m in cash. Banks may, therefore, be tempted to join the loan deal as a means of building up their relationship with the borrower in the hope of securing roles in such transactions in the future.

But RAM has warned that should the recent rapid expansion continue the borrower's balance sheet may be weakend leading to downward pressure on the current ratings.

Responses to the loan are due at the end of April.

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