Modernland Realty, which builds luxury townships in Indonesia, priced a capped $190 million five-year bond that is callable in year three on Tuesday as investors cashed-in on rare high-yield Indonesian credit post-election.
The group took the opportunity to replace its existing $150 million three-year senior unsecured notes maturing in 2016 with the new bonds. This helped the group towards its goal of reducing overall funding costs and lengthening its debt maturity profile.
Existing bondholders agreed to an exchange amount of $91.6 million resulting in a new cash amount of $98.4 million, according to a source close to the deal.
Modernland will use the remaining proceeds to repay certain bank loans, acquire land and for working capital and other general corporate purposes.
“Modernland’s current bonds expiring in 2016 are trading in the money and this gives the impression that, with a new bond issuance, the company might be able to save some interest cost,” Jacintha Poh, lead analyst for Modernland at Moody’s, told FinanceAsia. “This is a good chance for them to lengthen their debt maturity profile as well.”
The confirmation of new president Joko “Jokowi” Widodo, who pledged to let foreigners buy apartments worth at least Rp2.5 billion ($214,427) for the first time in areas including Jakarta and Bali, and the rarity factor of Indonesian names in the high-yield space, helped boost secondary bond market performance of Indonesian developers across the board.
These factors also helped garner interest for Modernland’s new 144A/Reg S-registered offering.
Prior to the pricing of the new bond, Modernland’s $150 million of 11% notes — which were used as comparables — were trading at a cash price of 105.88 on the dollar or a yield of 8.53%, the highest since they were sold at par last October, according to Bloomberg prices.
As part of the exchange process, existing bondholders were offered a cash price of 107 for the old bonds if they were willing to swap into the new notes. The developer’s new offering ended up pricing at the final price guidance of 9.75%, according to a source close to the transaction.
“There’s very few paper from the high-yield Indonesian property space, so if you’re an investor and want diversification, you can hold Indonesian names because everything else that’s in the property space is Chinese,” Moody’s Poh added.
According to Dealogic data, Chinese issuers account for more than 60% of the total high-yield bond market in Asia ex-Japan, which currently stands at $17.8 billion with 51 deals year-to-date. There has only been $800 million or six deals from Indonesia’s high-yield space.
Orderbook size
Modernland's deal was well covered receiving an orderbook over $310 million from 26 accounts, 79% of which were from Asian investors, followed by European investors 10% and the rest to US investors.
Fund managers subscribed to 72% of the notes, followed by private banks with 14%, financial institutions 6%, insurers 5% and others 3%, according to a source close to the deal.
Established in 1983, Modernland is an Indonesian property developer focused on industrial towns, as well as residential and township developments. It also has small exposure to the hospitality and commercial property segments.
The company was listed on the Jakarta Stock Exchange in 1993, and is 63% owned by the Honoris family either directly or through various holding companies, including a 29.75% stake held by AA Land.
Citi, JPMorgan, Standard Chartered and UBS were the joint bookrunners of the Modernland’s transaction.
Other property names
Elsewhere in the property space, Chinese developer KWG property is marketing a benchmark five-year high-yield bond that is callable in year three at an initial price guidance of 8.625%, according to a term sheet.
The Reg S-registered note, which is guaranteed by certain non-Chinese subsidiaries of the issuer, could be priced as early as Tuesday. The proceeds of the offering will be used to refinance KWG’s existing debt and to finance new projects.
“The Asian credit markets are still seeing pockets of liquidity and good volume go through in certain names, despite the summer period,” Amit Sheopuri, co-head of Asia debt origination, said, adding that the Chinese high-yield property market rallied in the last week.
“With emerging market bond funds witnessing yet another week of inflows, it seems the risk appetite will continue to drive the new issues over the coming weeks and the summer blackout period remains a mirage at this point,” he added.
Performance was mixed on the high-yield side. China real estate high-yield rallied by about 1bp to 1.5bp for both BB and B rated issues, while industrials were slightly up, syndicate bankers said.
Goldman Sachs, HSBC, Morgan Stanley and Standard Chartered are the joint bookrunners of KWG’s new offering.
Also, Chinese developer Greenland is in the middle of fixed-income investor roadshows, which began on Tuesday. The borrower has mandated Bank of China International, Credit Suisse, HSBC, JPMorgan and Morgan Stanley as potential bookrunners and a dollar-denominated Reg S offering may follow, subject to market conditions.
