Bonds from Pertamina and Bank of Ceylon

Pertamina and Bank of Ceylon tap strong demand for emerging market credits

Despite the never-ending deal flow in Asia's dollar bond markets, emerging market investors clearly want more of Bank of Ceylon and Pertamina.

Indonesia’s Pertamina and Sri Lanka’s Bank of Ceylon tapped exuberant demand for emerging market credits late last week, raising a total of $3 billion. Judging by investors’ response to both deals, which attracted a huge order book of $13.1 billion, there is pent-up demand for more.

Both are quasi-sovereign credits. Pertamina, a 100% state-owned oil and gas company, was returning to the debt markets with a $2.5 billion dual tranche 10- and 30-year bond after an absence of less than a year. The deal was the first since its upgrade to investment grade status. On the other hand, Bank of Ceylon, which is also wholly state-owned, was issuing a debut $500 million bond.

Both seemed to tick the right boxes with investors and even won grudging plaudits from rivals (who are typically all too willing to pour scorn on others’ deals). One banker who was not on the deal conceded that it went well and was “another feather in the cap for Pertamina”.

Similarly, Bank of Ceylon’s debut represented the return of Sri Lanka — once viewed as something of a basket-case credit, but one that investors are now enamoured with, judging by the $3.8 billion worth of orders that came in.

“Indonesia and Philippines remain the focus among emerging market investors — even though Indonesia is now investment grade,” said the rival banker. “But in the lower tier sovereigns, among names like Vietnam, Pakistan and Sri Lanka, we haven’t seen much issuance. Sri Lanka seems to have filled that void.”

Both sets of bonds came at the tight end of final guidance. Pertamina’s $1.25 billion 10-year bonds priced at a yield of 4.95%, at the tight end of the 4.95% to 5% final guidance while the $1.25 billion 30-year bonds priced at a yield of 6.1%, at the tight end of the final 6.1% to 6.15% guidance. Bank of Ceylon priced its bond at 6.875%, also at the tight end of the 6.875% to 7% final guidance.

The outstanding Pertamina 2021 bonds were trading at 4.7% and the Pertamina 2041s were 5.98%. After taking into account the curve, according to one banker, that means Pertamina paid a new-issue premium of about 8bp to 9bp.

For Bank of Ceylon, the key comparable was Sri Lanka’s outstanding bonds. The outstanding Sri Lanka 2015s were at 4.82% while the 2020s were at 6.05%, which put a new Sri Lankan bond at about 5.3%, according to a banker. Bank of Ceylon’s bonds came about 157bp back of that. By comparison Turkey Eximbank recently priced 145bp back of the sovereign while Development Bank of the Philippines trades 140bp back of the sovereign. Indonesia Eximbank recently also priced its bonds about 80bp back of the sovereign. “I wouldn’t say Bank of Ceylon got cheap pricing but it was undoubtedly a good trade for the bank,” said the rival.

Both bonds held up in secondary market performance. The Pertamina 2022s were at 99.875, above the 99.414 reoffer, while the 2042s were at 98.75, above the 98.631 reoffer, thanks to strong buying from Indonesian accounts in secondary markets. However, the 2022s later weakened to 99.4, straddling the reoffer, and the 2042s traded at 98.25, against a weaker backdrop in Asia.

Bank of Ceylon bonds traded solidly in secondary and were quoted at a cash price of 100.75, above the par issue price. “The Bank of Ceylon bonds have traded up, whereas we’ve seen China Merchants trade down,” said one banker.

Bank of America Merrill Lynch, Citi and HSBC were bookrunners for Bank of Ceylon while Barclays, Citi and HSBC were joint bookrunners for Pertamina, which raised $1.5 billion last year through Credit Suisse, Citi and HSBC, and chose to rotate out Credit Suisse for Barclays this time.

¬ Haymarket Media Limited. All rights reserved.

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