PLN issues 30-year high-yield deal

Pricing amid a host of other issues last night, PLN had little trouble attracting investors to its $1 billion dual-tranche deal.
PT Perusahaan Listrik Negara (PLN), the Indonesian electricity utility, issued $1 billion through a Ba/BB-rated dual-tranche $500 million 10-year and $500 million 30-year deal last night. The transaction, managed by UBS, priced following a roadshow in London on Monday, New York on Tuesday and Boston on Wednesday.

The 10-year tranche priced with a coupon of 7.250%, a yield of 7.375% and a price of 99.127, with a spread over 10-year US Treasuries of 222.6bp. The book for this tranche was five times covered, with 140 investors participating in the transaction. UBS released an initial guidance on Monday in the 7.375% area, and revised yesterday to 7.250%-7.375%.

In terms of geographic split, 35% of the bonds sold to Asia, 34% to the Europe and 31% to the US. Banks bought 19%, asset managers 60%, funds 17% and retail 4%.

"Without yesterday morning's volatility, PLN could have potentially priced its 2017s at 7.25%. This would have allowed the company to price through its own curve," says one market observer.

Closing with a coupon of 7.875%, a yield of 8% and a price of 98.586%, the 30-year tranche was six times oversubscribed, with 125 investors participating in the deal. Initial guidance was set in the 8.125% area, revised to 8%-8.125%.

The geographic split saw 29% of the bonds allocated to Asia, 56% to the US, and 16% to Europe. In terms of investor-type split, banks bought 15% of the paper, asset managers 53%, funds 27% and retail 5%.

In terms of comparables for both tranches, IndonesiaÆs sovereign 2016 bonds were trading initially at 6.26% and the 17s at 6.27%, while PLN's outstanding 2016 were trading at 7.31%. At time of pricing, these were trading at 6.26%, 6.30% and 7.32% respectively. Meanwhile, IndonesiaÆs 2037Æs were trading at a yield of 6.37%, which widened to 6.90% at time of pricing.

Last year, PLN priced a five-year deal at 7.45%, and a 10-year at 7.9%. In contrast, the company last night priced a 10-year at 7.375% and a 30-year at 8%.

Some investors felt that the company showed a lack of transparency in its planned issuance. While PLN have stated that they have no intentions of tapping the market again this year, some sources on the buy-side complain they have not been given a clear idea of the companyÆs plans beyond that. Others on the buy-side say that the companyÆs stats show quite clearly that it will need to come back and re-issue regularly, which probably means the market technicals of these bonds will go down.

But most felt comfortable with the credit and its relationship to the sovereign. Despite the companyÆs weak credit metrics, there is a high likelihood that the Indonesian government would support the company should it become distressed. The company is 100%-owned by the Ministry of State-owned Enterprises. This is reflected by MoodyÆs B1 rating of the bonds. The rating agency estimates that given the close integration of PLNÆs rating with the sovereign rating, a rating change of the foreign either way would similarly affect PLN.

Some investors shied away from the deal once guidance was tightened, purely as a result of yesterdayÆs market downturn.

The proceeds will hep fund capex requirements associated with the Fast Track programme and for general corporate purposes.
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