An increased $300 million five-year deal was priced on Friday by lead managers ABN AMRO, JPMorgan and Salomon Smith Barney. The Reg S offering was increased from $200 million and priced at par with a coupon of 8% to yield 531bp over Treasuries.
Having gone out with indicative pricing of 8% to 8.25%, the leads were able to price at the tight end of the range after building up a $625 million order book, three times the original size of the deal. Allocations saw 15% of bonds placed in Europe, 1% with offshore US accounts and the balance in Asia, where demand was fairly evenly split between Hong Kong, Singapore and Manila.
Private banking demand was said to have accounted for about half the deal, which paid fees of 50bp.
The two most striking aspects of the transaction are the tight spread relative to the sovereign curve and lack of covenants. Where the former is concerned, the deal came about 80bp wide of the Republic, which has a September 2007 bond trading at 452bp bid at the time of pricing.
This compares to a 128bp premium paid by JG Summit back in late January, when it completed a $100 million five-year deal on a coupon of 9.25% to yield 502bp over Treasuries. At Friday's close, this was trading at about 516bp bid.
Where covenants are concerned, SM Investments joins an elite band of domestic issuers are able to dispense with standard investor protection because they appeal heavily to their home audience. For a non-investment grade rated deal, international investors would normally expect debt protection ratios and for a holding company structure such as this, they would also expect limitations on subsidiary indebtedness and dividend protection measures.
JG Summit, for example, had caps on assets to liabilities and consolidated debt to consolidated shareholders equity. Every single high yield deal from Indonesia this year has been similarly structured. However, as bankers point out, the Philippines' top blue chip borrowers are often considered investment grade credits capped by a non-investment grade sovereign, whereas Indonesian blue chips are all considered high yield.
They also add that SM Investments and sister company SM Prime - the Philippines' largest mall operator - are considered prime investments for private banking accounts that tend to be less sensitive to covenants and highly sensitive to brand name.
The SM group is considered to be a rare and highly coveted brand name, with the Sy family renowned for their prudent management. Both companies are, for example, said to be net cash. Proceeds will be used to re-finance a floating rate note, which matures this autumn and general corporate purposes including the recent $185 million purchase of a 6.2% stake in San Miguel.
The sovereign, meanwhile, is currently considering its funding options after completing a non-deal global roadshow. Deutsche Bank ran presentations in Asia, UBS Warburg in Europe and JPMorgan in the US.