JG Summit brings rare corporate benchmark

The conglomerate prices the Philippines first pure corporate dollar bond in two-and-a-half years.

Taking advantage of low Treasury rates, the group has raised $100 million to partially re-pay a $200 million Eurobond maturing in May this year. The four-year deal came slightly wider than expectations and offered investors a roughly 128bp pick-up to both the sovereign curve and an outstanding issue by rival conglomerate Ayala Corporation.

With the group's house bank, ING Barings, as lead manager, a $100 million Reg S offering was priced yesterday (Monday) at par with a coupon of 9.25% to yield 502bp over Treasuries. There was no other syndicate.

The nearest comparable benchmark is a 9% November 2005 bond by the Bangko Sentral ng Pilipinas, which was yielding 7.98% bid at the time of pricing, or 400bp over Treasuries. A one-year shorter bond by the Ayala group, an 8.75% January 2005 transaction, was bid at 7.8%. Although JG Summit's new deal had been marketed at a 75bp premium to the sovereign curve, final pricing was more in line with historical precedent and described as fair by market participants.

As most outstanding corporate bonds from the Philippines are small and highly illiquid, the new deal adds a welcome new benchmark. However, since it takes very little to move the secondary market pricing, the group's own subsidiary Universal Robina, has seen its 8.375% December 2006 issue trade in about 12 points over the past month on very little volume. With a current bid/offer price of 90%/92%, bankers say the deal is currently trading around the 670bp mark.

The holding company itself is considered a mid double-B credit, one notch below the sovereign ceiling and as its deal was unrated, it predominantly appealed to an Asian audience. The order book, which closed about 15% oversubscribed, had a 90%/10% split between Asia and Europe, with about 60% of Asian demand said to derive from the Philippines. With a total of 20 accounts participating, demand split 60% retail, 20% financial institutions and 20% asset managers. Bankers say that they were particularly pleased that about 30% of the deal went to investors new to the credit.

Bankers believe that JG Summit's deal is unlikely to presage much of an uptick of activity in the international debt markets from the handful of PhilippinesÆ corporates able to access the market if they chose too. Most are either cash rich or more attuned to the better pricing on offer in the bank market.

Indeed, JG Summit has paid up nearly 100bp to get a one-year maturity extension and diversification of its investor base. In November, for example, it raised $100 million from a five-year syndicated loan with a three-year put, which was priced at 320bp over Libor, with a flat fee of 75bp over.

The new bond deal also has a number of debt protection measures for investors. The financial covenants state that the company must: maintain an assets to liability ratio of at least 1:1; a consolidated debt to consolidated shareholders' equity ratio that does not exceed 1.5 times and an EBITDA to debt service (including the current deal) ratio which is not less than 1.05 times FY01 and FY02; 1.1 times FY03 and 1.5 times thereafter.

The company's current EBITDA to gross interest coverage currently stands at 1.05 times. Gross debt stands at $800 million and net debt at $400 million.

The last time Philippines' corporates accessed the international markets came during a four-month period spanning April to August 1999, when PLDT followed by Ayala Corp, BayanTel and Globe Telecom all launched dollar bonds to varying degrees of success.

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