Small bond, big success: Sritex extends curve

The Indonesian garment manufacturer has pushed out its debt maturities, selling a small bond that got overwhelming demand.

Indonesian textile maker Sritex turned to international bond investors this week, finding more than enough cash to pay back a series of debt payments it is facing over the coming year.

The company, which has been listed on the Jakarta Stock Exchance since 2013, raised $150 million from a seven non-call four-year bond, joining a recent fundraising rush in the region. That will allow Sritex to pay back a mix of bonds and loans, including $119.3 million of bonds and MTNs falling due over the next two years.

Sritex was also able to extend its debt maturity. The standard deal structure for Asian high yield bonds is a five-year maturity with a call option after three years. That is the approach Sritex took for its two outstanding dollar bonds — but this time the company was able to extend both the final maturity and the call date.

The refinancing appears to have given Sritex plenty of breathing room. The company’s next “major maturity” is not until 2021, according to rating agency Moody’s. That is when Sritex’s $350 million senior bond falls due.

Sritex, founded by H.M. Lukminto and now managed by his son Iwan Setiawan Lukminto, has been listed on the Jakarta stock exchange since June 2013. The Lukminto family currently still more than 56% of the company.

Going global

Sritex targeted a mix of Asian, European and US investors with its bond, adopting a 144A/Reg-S format that gave it access to all three markets. That proved to be a smart decision. The bond generated as much as $850 million of orders at peak level, before closing at $777 million from 100 accounts, said a syndicate banker familiar with the deal.

In an attempt to figure out fair pricing, investors compared the bond to an outstanding note from rival Indonesian garment maker Pan Brothers. The B1/BB- rated company made its bond debut with a $200 million five-year bond in January, paying a coupon of 7.625%. But the deal was trading at a yield of around 7% on Monday morning.

That gave Sritex a target to shoot for.

Bankers working on the deal initially pitched investors with price guidance of around “the 7.375% area”, before narrowing the range to between 7% and 7.125% — and eventually pricing the deal at the tight end of guidance. The March 2024 note was fixed at 99.317 on a coupon of 6.875% to yield 7%, according to a term sheet seen by FinanceAsia

Investors also looked to Sritex’s own bonds. The company’s outstanding $350 million 8.25% 2021 note was trading on a cash price of 106.25 to yield 6.345%, according to a syndicate banker running the deal.

“We think the fair value of the deal should be at 7% area, reflecting the stronger credit fundamentals of the company compared to its smaller rivals,” said a syndicate banker. "Extending the maturity profile from a typical five-year paper to a new seven-year issue was the key takeaway from the trade."

The new bond is first redeemable on March 21, 2021 at a cash price of 103.4375, and thereafter callable on March 27, 2022 at 101.71875 and at par on March 27 2023.

In secondary trading on Tuesday morning, the new bond, issued through a vehicle called Golden Legacy, was little changed, hovering around the reoffer price.

Asian accounts were allocated 71% of the deal, while investors in Europe, the Middle East and Africa and the US took 23% and 6%, respectively. By investor type, fund managers/ asset managers took 79%, private banks/banks 16% and insurers/corproates/sovereign wealth funds 5%.

Citi was the global coordinator of the new offering, while DBS and HSBC were bookrunners alongside it.

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