Pan Brothers, an Indonesian garment manufacturer, raised $200 million from its international bond debut on Thursday, becoming the country's first offshore debt issuer this year.
The B1/B rated company's entrance into the international bond market was part of a broader plan to diversify its funding channel away from Indonesian bank loans, amid a swelling of its debt load over the last five years, bankers said. The proceeds of the new bond will be used to pay back outstanding dollar loans.
According to its latest financial results, Pan Brothers’ total debt rose to $264.8 billion in September 2016, up from $93.3 billion in 2011. Its return on equity fell to 4.87% from 9.17% over the same period, in part due to high capital requirements for manufacturers and rapidly-changing demand for fashion brands. This made the success of the company's bond all the more impressive.
“This deal is clearly a success for the company given the challenging operating conditions in the textile industry,” a syndicate banker commented. “The company had received a significant amount of early orders after meeting institutional investors in Hong Kong, Singapore and London over a three-day roadshow.”
The final order book for the Reg-S deal reached $800 million from 106 accounts, which was little changed from its peak level of $850 million before the release of final guidance.
On Thursday morning, the bookrunners — ANZ, HSBC, ING and Emirates NBD Capital — went out with initial guidance of “the 8% area”, before tightening that to around 7.75%. The five year non-call three bond ended up being priced at 99.49 to yield 7.75%, a term sheet shows.
The best comparable for the bond was Pan Brothers’ larger counterpart Sri Rejeki Isman, said bankers. The B1/BB- rated company has an outstanding 2021 bond that was trading on a cash price of 105.25 to yield 6.84% when Pan Brothers’ launched. Given the split rating difference and the maturity extension, that implied Pan Brothers priced roughly in line with fair value, bankers said.
Despite this ostensibly aggressive pricing, investors continued to take position in the trade. The non-call three bond was traded up at a cash price of 100.20/100.5 to yield 7.59% on Friday morning, according to a syndicate banker.
The bulk of the bond was sold into Asia, where investors were allocated 82% of the bond. The rest went to Europe, the Middle East and Africa. Fund managers and asset managers bought 93%, private banks took 6% and banks were allocated the remaining 1%.