Malaysia International Shipping Corporation (MISC) completed an inaugural two tranche bond issue on Friday raising $1.1 billion from and a five and10-year 144a transaction.
Under the lead management of Barclays and Citigroup, the Baa1/BBB+ rated credit raised $400 million via the five-year tranche and $700 million via the 10-year deal after seeing order books close at respectively $1.3 billion and $1.1 billion.
The five-year tranche was priced at 99.834% to yield 5.038%, equating to120bp over Treasuries, or 67bp over Libor. This tranche came through indicative price guidance of 125bp to 135bp. Fees were 30bp.
The 10-year was priced at 99.506% to yield 6.192%, equating to155bp over Treasuries or 103bp over Libor. This represented the mid-point of 150bp to 160bp range. Fees were 40bp.
The most relevant pricing comparable is state-owned company Petroliam Nasional Berhad (Petronas), which owns 62% of MISC. The main difference between the two is that MISC is rated one notch below the sovereign by Standard & Poor's, whereas the three sovereign proxies - Petronas, Tenaga and Telekom all have the sovereign's Baa1/A- rating. MISC also operates in a highly cyclical industry, which is currently out-of-favour with equity investors.
Taking into account the need for a roughly 10bp new issue premium, specialists estimate that MISC priced at a 10bp premium to Petronas and 10bp through Tenaga on a like-for-like basis. Investors, therefore, appear to have accorded the deal a "Petronas kicker" despite the slightly weaker rating.
At the time of pricing, Petronas had a 2015 bond trading at 145bp over Treasuries or 92bp over Libor. The Libor curve between a 2014 and 2015 bond is said to be worth 10bp.
Similarly Tenaga has a 2011 bond outstanding that is trading at 86bp over Libor. The curve between a 2011 and a 2009 bond is said to be worth about 18bp.
Observers estimate there was about 30% of overlap between the two order books. A total of 96 accounts participated, with 69 in the five-year and 59 in the 10-year.
By geography, the five-year book split 37% Asia, 51% US and 12% Europe. This book is said to have seen a lot heavier asset swap demand than recent deals, particularly from Malaysia. Observers believe this may hold spreads steady during secondary market trading.
"About 40% of the Asian book was asset-swapped," says specialist. "MISC has a lot of lending relationship in Malaysia and much of this tranche is never going to see the light of day again."
The 10-year book is said to have a split of 29% Asia, 61% US and 10% Europe. Again specialists believe the deal will hold steady, this time because of the strength of US demand.
"Many of the fast money accounts based in Europe were completely absent because they've been so burnt in recent weeks," he adds.
Participants say the MISC team delivered one of the most sophisticated presentations from Asia in a long time. Strength of demand persuaded the company to increase the overall deal size very slightly and it decided to maximise the 10-year tranche because there is a better fit with the long-term nature of its contracts.
MISC is the world's third largest shipper of LNG, which accounts for about 60% of its EBITDA. In its ratings release, S&P said it would consider upgrading the company if it saw evidence of meaningful de-leveraging and a successful integration of American Eagle Tankers (AET), which MISC purchased last July.
Proceeds from the bond issue are being used to re-finance the $830 million bridging loan used to fund the AET purchase, which doubled MISC's debt to M$9.3 billion ($2.45 billion).
