Matahari comes in from the cold

After three attempts, the Indonesian retailer successfully launches its high-yield bond offer.
Five months after it was first marketed, Credit Suisse and UBS have finally priced a $150 million bond offering for Indonesian retailer Matahari. The deal, which closed on Friday (September 29), marks the third international high-yield deal to emerge from Asia this month. The other two were deals for MNC and Agile.

Matahari has tried three times to get its bond transaction off the ground. In May, the original deal was marketed as a $300 million bullet transaction with a five- or seven-year maturity with price talk around 9%. However that deal was shelved when the markets turned South shortly after.

The deal re-emerged in August as a downsized offering with a five-year maturity and an indicative pricing slated for around the 10% level. But, again, the timing was wrong and the deal was postponed.

When Credit Suisse and UBS re-launched the deal for a third time, it came as a three-year non call one-year deal with a guidance of 10%. Final pricing came in at 98.731% with a 9.5% coupon to yield at 10%. On a spread basis, that equates to 542bp over three-year US Treasuries or 498bp over mid-swaps.

The deal has two call dates - the first on 9 October 2007 at a price of 104.75% and the second on 6 October 2008 at 102.375%. The notes are issued via Matahari Finance but are wholly guaranteed by parent Matahari Putra Prima.

Books were closed on Thursday, with around 60 accounts being allocated paper. Geographically, Asia accounted for the majority of the deal picking up 53%, while European accounts took 37% and offshore US accounts took 10%. By investor type, asset managers were the big buyers taking 66%, banks followed with 26% and other accounts bought 8%.

Due to the deal's relatively short maturity making comparisons to other deals is somewhat difficult. Bankers, however, point to deals for Lippo Karawaci and the recent MNC trade.

LippoÆs deal, a B2/B+ rated $250 million five-year offering completed in March, was quoted at the 10.125% level when Matahari priced. While the Ba1/BB+ rated $168 million five-year offering for MNC, which priced at 98.126% with a semi-annual coupon of 10.75% to yield at 11.25%, at the start of September, was quoted at 11.1%

When the new deal for Matahari opened in trading on Friday night, it quickly traded higher with a bid/offer of 99% to 99.375%.

The strong performance is evidence that the company has always had solid underlying fundamentals, and proves that the difficulty it had with launching the transaction has more to do with the poor market for Asian G3 high-yield bonds.

When the deal was originally launched in May it followed a ratings upgrade for the company from S&P and a highly-favoured rating from MoodyÆs following the upgrade of the Indonesian sovereign.

S&P raised Matahari two notches from B- to B+, while MoodyÆs assigned a B1 rating. ôThe upgrade is based on the company's continued improvement on several operational fronts to strengthen its competitive position, as well as the significant reduction in its foreign exchange risk exposure after the repayment of its US dollar debt,ö states S&P. ôNevertheless, the rating continues to reflect Matahari's exposure to the generally very difficult and high-risk operating environment in Indonesia, very competitive trading conditions, and the susceptibility of its liquidity position to counterparty risks and the weak credit quality of the domestic banking system.ö

In its ratings report, MoodyÆs stated: ôMatahariÆs debt service ratios are modest with adjusted net debt/Ebitda to stay around five times to 5.5 times and operating cash flow/average adjusted total debt at 10% to 15% in the medium term.ö

ôHowever, Ebit/interest is relatively weak at one times to 1.5 times. Its free cash flow metrics are also weak, given the aggressive Capex programme it is implementing to expand its store network. This situation will increase the companyÆs exposure to execution risk.ö

Matahari has earmarked Rp1 trillion to expand its operation by 10 hypermarkets, another 10 department stores and five specialty stores by the end of the year.
¬ Haymarket Media Limited. All rights reserved.
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