Investors in SM Investments Corporations’ existing 2013 and 2014 bonds got the opportunity to extend the maturity of their holdings through an exchange offer that included the issue of seven-year debt. The Philippine conglomerate priced the new $400 million bond yesterday following an exchange offer for its $350 million 6.75% bonds due 2013 and the $500 million 6% 2014 bonds that were launched on September 22.
The new bonds came to market unrated. The deal is the first combined bond swap and new fundraising deal to come out of the Philippines, and the first liability management transaction issued by a Philippine corporate borrower.
Some $75.7 million of the 2013s and $120.8 million of the 2014s were offered for exchange by existing bondholders. Taking into account the respective exchange ratios for the credits -- 109.5 for the 2013s and 108.25 for the 2014s -- this meant the principal amount of bonds being exchanged totalled $213.7 million, comprising $82.9 million of 2013s and $130.8 million of 2014s.
The participation rate by existing accounts in the exchange offer was 25%, which acted as an anchor for the new money component of the transaction.
“Once you have $200 million of bonds secured for a transaction it obviously provides a lot of comfort for everyone you’re trying to get involved on the new money component, because they know they’re going to have a liquid benchmark,” explained one banker.
An additional $186.2 million was raised through the new issue bringing the total deal size to $400 million. On the back of the strong anchor by the exchange offer, joint bookrunners Citi and HSBC amassed a $1 billion orderbook from 70 accounts.
SMIC’s new securities will mature on October 13, 2017. They pay a semi-annual coupon of 5.5% and printed at par to yield 5.5%.
The comparable notes for the new issue were First Pacific’s outstanding 2017 bonds ($300 million), which at the time the deal was announced were trading at a yield of about 6%. Another benchmark security was Alliance Global’s recent $500 million 2017 issue, which was seen at 6.5% when SMIC priced.
SMIC priced well inside both these comps at 5.5%, which is the lowest ever coupon for long-dated funding in the Philippines -- a strong selling point for the borrower.
“With any paper that comes out of the Philippines, there tends to be a healthy subscription level from onshore investors,” said one banker. And the new 2017s proved to be no different with 27% of the bonds being sold into Philippine-based accounts.
The rest of Asia bought 64% of the bonds and the remainder was sold to European accounts.
In terms of investor type, one banker noted that a lot of the bonds were placed in the hands of retail investors or small individual investors. It was speculated that this could've been carried by wealthy offshore Filipinos; however that could not be immediately confirmed. Specifically, funds were sold 40% of the bonds, private banks 38% and banks 22%.
From the issuer’s perspective, executing a clean bond swap and printing a new deal was about more than just extending the maturity of its outstanding debt. It was also about smoothing out its existing debt profile and taking advantage of the low risk-free rates that are currently in the market.
“Post transaction we now have a much more balanced distribution of debt profile,” said one source.
As the new bonds opened for trading yesterday, they hit a high of 102.875 before settling at 101.75 -- one point up from where they came to market.
Investors can expect to see a steady flow of Asian companies coming to market in the coming month, as strong fundamentals are expected to remain in place.
“The risk is low, appetite is high and transactions are going well,” said one banker. So from an issuer’s perspective this is a very appealing time to be selling debt. Reliance Industries and Central China Real Estate have both announced deals that are set to price next week.