Indonesian real estate developer Lippo Karawaci last night priced a $150 million seven-year bond — a deal that clearly illustrated the dearth of quality Indonesian paper. The company went out with aggressive terms on a weak day and managed to attract $680 million worth of orders from 72 accounts. Meanwhile, its outstanding bonds also tightened sharply in secondary.
The company announced initial price guidance of around 7.25% at noon on Wednesday. From the onset, this looked aggressive compared to the Lippo 2015s, which were yielding 6.91%. Lippo’s new bonds mature in 2019, but are callable after the fourth year.
“Initial guidance of 7.25% seems very tight especially on a weak day,” said one banker away from the deal. “Adjusting for the rate extension, fair value is high sevens. But maybe that is why they are testing a $150 million deal.”
Curiously, investors then started buying the 2015s, which tightened to yield 6.5%. At that point, the guidance of 7.25% started looking a lot more attractive. Lippo had also announced that the deal was capped at $150 million. This meant that there were a finite amount of bonds. The leads then revised guidance to 7.125% — and that was where the bonds priced. The coupon was fixed at 7% and the notes reoffered at 99.32.
Lippo had a number of things going for it. For one, Fitch had just upgraded the company from B+ to BB- on Tuesday. Also, it is a repeat issuer with a strong investor following, it was tapping the market for a small amount and investors are bullish on Indonesian real estate.
“The company is well tracked and its outstanding bonds have performed well,” said one banker. “It was upgraded by Fitch on Tuesday and was also upgraded by S&P [Standard & Poor’s] before that. It is a strong showing for a company — to move from being rated single B by all three rating agencies to double B by two of them.”
Others pointed to the lack of decent quality paper out of Indonesia, particularly since onshore funding is competitive compared to the dollar market. “What this is indicative of is the lack of high quality names out of Indonesia. Any time you see a regular borrower such as Berau or Cikarang come to market, investors pile in and the bonds outperform. However, the market is not open to every name — we’ve seen Alam Sutera issue at a 11% yield while Lippo has gone out with a 7.25% guidance — that’s quite a big differential in the real estate sector,” said a banker.
The deal was rumoured to be on the back of a reverse enquiry and a number of banks had met with the company to pitch for the deal. Asian investors were allocated 93% and the rest went to Europe. Asset managers were allocated 55%, private banks 39%, banks 3% and insurers 3%
Citi and Deutsche Bank were joint global coordinators and bookrunners. RBI was also a bookrunners. The issue is expected to be rated B1 by Moody’s, BB- by S&P and Fitch.
