The B1/BB-/A (Moody's/S&P/Pefindo) rated deal marks the largest non-investment grade corporate bond from Asia all year and, with the exception of Hutchison's euro transaction, would be the largest corporate deal of the year alongside investment grade deals for PSA (Aaa/AA) and Penerbangan Malaysia (A3/A-). Moreover, the deal propels UBS to the top of the Asian G3 non-Japan Asian bond league tables.
PLN had set a minimum target of $500 million for the deal, but the market suggested that the deal could be worth upwards of $1.5 billion.
The deal was announced late on Tuesday last week, with roadshows kicking off in Hong Kong on the October 5, before heading to Singapore and New York. Guidance was released late on October 9 with an aggregate deal size of $1 billion, marketed as a five-year in the 7.5% to 7.75% range and a 10-year in the 8% to 8.25% area.
When news of the deal first emerged in June, it was widely expected that PLN was seeking to do a collective international Islamic and standard financing transaction. However, tax structuring issues saw the Shariah-compliant aspect of the deal withdrawn.
During the roadshows, IndonesiaÆs own 2017s were trading at 6.5%, so guidance was amended to a premium of 150bp to 175bp over the sovereign. At final pricing, the levels were set at $450 million for the five-year at 7.4% and $550 million for the 10-year at 7.9%. Meaning that the notes priced through the bottom of the indicative ranges.
When the deals closed, pricing on the five-year $450 million tranche came in at 99.382% with a coupon of 7.250% to yield at 7.4%. That equates to a spread of five-year US Treasuries plus 266bp or 216bp over mid-swaps. The 10-year $550 million tranche priced at 98.976% with a coupon of 7.750% to yield at 7.9%, or 313bp over 10-year Treasuries, or 257bp over mid-swaps.
UBS closed the books at a combined level of over $6 billion, with over 250 accounts participating over both tranches. The shorter tranche was oversubscribed some 5.75 times with 150 investors subscribing, while the longer-dated tranche was 6.75 times oversubscribed with 205 investors taking part.
By geography the five-year notes are said to have been split thus: 30% Asia, 40% US and 30% Europe. With 79% of the bonds being bought by fund managers, 12% by banks, 5% by insurers, 3% by retail and 1% by others. The ten-year tranche had the same geographic slit, with 77% of the notes going to fund managers, 15% to banks, 5% to insurers, 1% to retail and 2% going to others.
Although the pricing looks somewhat investor friendly, PLN opted to leave something on the table for investors in the hope of setting a stage for sustained access to the debt markets.
The proceeds from the sale will help to finance PLN's $18 billion capital expenditure plans over the next four years. Furthermore, PLN stated on the roadshows that it has a $1.65 billion requirement of immediate financing to fulfill its fast-track generator building programme. So this deal goes some way to establishing a precedent for a recurrent borrowing plan.
Most bankers used Napocor in the Philippines as a comparable to PLN. Both are loss generating state-owned power companies. PLN is 100% owned by the Indonesian government and is charged with providing 85% of the country's generation capacity as well as the national distribution network. The government ownership is represented by the Ministry of State-Owned Enterprises.
The government subsidises PLN in order to make up the shortfall between the governmentÆs established tariff for electricity and incurred production costs. Currently, 5% of the national budget goes to subsidising electricity prices.
"The BCA of 14 reflects PLN's importance as Indonesia's only vertically integrated electricity utility and expectations of sustained government support - through subsidies - to ensure its financial viability and operational soundness. Such an expectation is underpinned by its strong links with the government, which is its 100% owner," says Moody's lead analyst Jennifer Wong. "Furthermore, subsidies to PLN are part of the state budget. As such, Moody's views PLN's rating as closely integrated and strongly linked to the government's credit quality."
However, where Napocor's has a cross default with the sovereign, meaning that its debt obligations are explicitly guaranteed by the Republic of the Philippines, this is not the case for PLN. Currently, NapocorÆs $400 million 2011s are quoted at a 60bp to 70bp premium to the Philippines 2011 bonds, which closed trading Thursday at 103bp over US Treasuries.
Additionally PLN's domestic rupiah-denominated 10-year is a direct comparable to the Indonesian rupiah offering which has a 197bp curve. PLNÆs domestic deal, an Rp1.335 trillion was quoted at 12.72%, while the sovereignÆs Rp5.333 trillion was bid at 10.75%.
PLN is a vertically integrated electricity utility with a generation capacity of over 22,000MW. It is a monopoly operator of transmission and distribution networks and is the country's largest electricity producer.