Indonesian state-owned electricity company Perusahaan Listrik Negara (PLN) early Wednesday morning priced a $1 billion 10-year bond at a yield of 5.625%, at the tight end of the 5.625% to 5.75% final guidance. Barclays Capital and Citi were joint bookrunners.
PLN is the major provider of all public electricity infrastructure in Indonesia. The company is rated Ba1 by Moody’s and BB+ by Fitch, similar to the Indonesian sovereign. However, it is rated BB by S&P, one notch below the sovereign. This was the first time PLN was rated by Fitch.
It was also the first time that PLN issued bonds directly instead of through a special purpose vehicle (SPV). Private Indonesian companies typically issue bonds through offshore SPVs to avoid paying a 20% withholding tax to the government. However, as PLN is wholly owned by the Indonesian government, the payment of tax was viewed as a transfer from one pocket to the other.
Issuing directly instead of through an SPV meant that a wider pool of investors could participate as some funds cannot buy bonds that are not issued directly by a company. With investors hungry for Indonesian paper, the deal gathered a robust order book of $5.5 billion from more than 200 accounts. The coupon was fixed at 5.5% and the notes reoffered at 99.054 to yield 5.625%.
PLN had completed a non-deal roadshow in late September, but held off announcing a deal until Tuesday morning. The transaction was announced hours after the Indonesian sovereign had completed its own $1 billion seven-year sukuk, allowing PLN to tap excess demand.
However, the fact that it announced a trade so soon after the sovereign and went out with a fairly wide initial guidance in the area of 5.875% led to some criticism from rivals, particularly since the recently priced Indonesian sukuk weakened after guidance.
The new PLN bonds performed in secondary on Wednesday despite noticeably weaker market conditions. The iTraxx Asia Investment Grade Index widened by 9bp to 210bp/217bp on Wednesday but the new PLN bonds outperformed and were quoted at 99.5/99.625, above the reoffer. The Indonesian sukuks were relatively firm at 99.95/100.1 on Wednesday, straddling the par issue price. In contrast, Indonesian credit default swaps widened 13bp to 218bp/228bp.
The PLN bonds maturing November 22, 2021 priced about 150bp back of the Indonesia 2021s, which were yielding 4%, after taking into account the slight tenor extension. Rivals claimed the pricing was wide, arguing that PLN’s bonds usually trade 100bp to 125bp back of the sovereign, but one person familiar with the deal said that the spread has since moved to 150bp to 180bp.
He added that the PLN January 2020s were trading at a yield of 5.2% before the deal was announced. The tenor extension was worth about 35bp, which meant that the new issue premium paid was a mere 7.5bp compared to 25bp to 30bp for other recent issues. The 5.5% coupon was the lowest achieved by PLN for a dollar bond.
Asian investors were allocated 44%, European investors were allocated 21% and US investors were allocated 35%. Asset and fund managers were allocated 64%, insurers and pension funds 19%, banks 7%, private banks 6%, central banks and others 4%.
The notes were issued under PLN’s $2 billion global medium-term note programme, which was set up in September this year.