Siam Pulp and Paper launches Bt10 billion bonds

The region''s largest producer of industrial paper issues its first ever bond deal.

Siam Pulp and Paper (SPP) of Thailand, the largest producer of industrial paper in the Asia-Pacific region, has issued Bt10 billion ($224.2 million) of bonds in a deal guaranteed by its parent company, Siam Cement (SCC).

Bangkok Bank, Deutsche Bank, Siam Commercial Bank, Thai Farmers Bank and Thai Military Bank acted as joint lead-managers on the transaction.

SPP's offering, rated single-A by Fitch Ratings, was split into two Bt5 billion tranches, one for three years and the other for five years. The shorter-dated piece carries a fixed coupon of 5.5% and the coupon on the five-year bonds was set at 6.5%.

Both notes priced at 99.99, giving a real yield of 5.537% for three years and 6.552% for five years. Although there is no equivalent three-year government benchmark, SPP's three-year notes give a spread of 228bp over two-year treasuries and 138bp over five-year government bonds.

A spread pick-up of 240bp can be gained on SPP's five-year paper.

The last few months may have been extremely quiet for Thailand's domestic bond market, but Vorapak Tanyawong, co-head of global markets and head of Deutsche's debt capital markets and liability risk management team in Thailand, says the success of the SPP transaction points to a resurgence in activity in the next few months.

"The reputation of SCC as a guarantor and the A rating from Fitch attracted overwhelming interest from retail investors," comments Tanyawong. "As a result, the issue was heavily oversubscribed within the first day of launch. Following the rise in the baht yield curve since July, the success of this transaction has re-activated the corporate baht bond market and demonstrates the execution capabilities of the arranger banks."

Thirteen companies are incorporated under the SPP banner and the group recently recorded a net profit of Bt894 million in the second quarter of 2001, up 14% from the Bt783 million achieved in the same period last year.

Proceeds from the issuer's first bond deal will be used to refinance existing bilateral loans, inter-company loans and to boost expansion of the firm's pulp capacity.

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