Mobilink prices Pakistan's first high-yield debt offering

ABN AMRO and Deutsche Bank close debut deal for Pakistani telco with tight execution.
ABN AMRO and Deutsche Bank completed a hugely successful deal for first-time borrower Pakistan Mobile Communications (Mobilink) early Friday morning (November 3).

The $250 million deal, a Reg-S 144a B3/B rated $250 million seven-year non-call four year structure, garnered huge demand on the back of its rarity value with the leads closing the order book some 15-times oversubscribed.

Launched on Wednesday, with an initial guidance of 8.75% to 9%, the deal saw pricing come in to 8.625% on Thursday as it picked up momentum through a very controlled bookbuild heading into Friday's pricing. The leads only kept the books open for two hours in Asia and Europe, while only opening them for 90 minutes in the US.

Indeed, with a total of $3.9 billion in orders it is one of the largest order books on account thus far this year. Only the Republic of Philippines deal - completed in July - had a comparable book size percentage at 12-times over.

Final pricing came at par with a semi-annual coupon of 8.625%, equivalent to a spread of 408bp over five-year US Treasuries. The deal was already trading up a couple of points at the break. It was quoted at a bid of 102 plus change at the bid.

The order book closed with over 230 investors from 29 countries taking part û almost double that of the previous dual tranche deal for the Republic of Pakistan û the sovereign sold a $500 million 10 year and $300 million 30 year in March.

Geographically, the book was split evenly over its jurisdictions with 38% heading to Europe and Middle Eastern countries, 32% going to the US and 31% to Asia.

By investor type, funds took the majority of the deal at 65%, insurers, pension funds and commercial banks bought 13%, retail investors accounted for 12% and banks picked up the remaining 10%.

Having few, if any, real comparables, the leads took the deal to investors first with the aim of getting feedback to determine initial guidance - a rare move in the Asian markets. Investor response was expansive, with some feeling that fair market value for the deal was in the low 12% range, while others came back looking in the high 8% area.

In fact, the deal marked a number of firsts for the market. Mobilink is PakistanÆs first corporate deal and first high yield offering.

As noted, clear cut comparables are difficult to pin down, with the sovereign the only other Pakistan deal in the market. That deal, a $500 million 10 year offering was initially priced at par on a coupon of 7.125%, or 239.6bp over US Treasuries. That is now trading at 7%, while an implied new 2013 deal with a similar call structure would probably come at around 7.40% implying a 125bp premium for the new Mobilink bond, according to specialists.

Compared with other curve differentials between top telecoms and their respective sovereigns, Mobilink final pricing comes competitively despite its weaker ratings and higher leverage. Taking into account the relatively flexible covenant package the valuation looks even more aggressive.

Top Indonesian telecom, Excelcomindo which has a 2013 rated BA3 offers a 110bp premium to the sovereign. It should be noted also, that Excelcom's parent company Telkom Malaysia is a blue-chip entity.

Additionally, Hanaro Telecom has a 2012 rated BA2 that is trading at 197bp over the Korean sovereign

In terms of similarly rated comparables, bankers quoted deals from Ranhill, Greentown, Lippo, Gajah Tungal and G-Steel.

Malaysian holding company, RanhillÆs 2011 B-/B- rated deal, which it priced last month, is trading at 12.50%; property developer Greentown has a Ba2 rated 2013 trading at 9%; property company Lippo Karawaci has a B1 rated 2011 trading at 9.30%; tyre manufacturer Gajah TunggalÆs deal, a $325 million five-year B2/B deal is trading at 11%; while ThailandÆs G-SteelÆs B1 rated 2010 deal is trading at 12.78%.

Mobilink, headquartered in Islamabad, is PakistanÆs largest phone company. It is 88% owned by EgyptÆs Orascom Telecom. The proceeds of the bond would be used for capital expenditure and refinance Mobilink's bridging facilities of up to $100 million.
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