Banglalink Digital Communications sold a $300 million five-year note last Friday — Bangladesh's first dollar-denominated bond — as it looks to grow its business domestically and refinance existing debt.
The 144A bond, which started marketing a week before it priced, faced some technical challenges when it came to gauging the fair value of the offering due to the fact that there were limited direct comparables and few high-yield telecom companies in Asia.
Despite this, investors say that a yield of around 9% to 10% looks fair when compared with other single-B Asian corporates. Also, a credit analyst said the 250bp yield pickup over the 2019 bonds issued by VimpelCom, its ultimate parent, looks decent.
Banglalink’s bond, which is callable in the third year, ended up pricing at a yield of 8.875%, and received an order book of around $900 million from 90 accounts. Asian investors subscribed to a bulk of the notes, accounting for 64%, followed by European and US investors at 29% and 7%, respectively, according to a term sheet seen by FinanceAsia.
The bond issuance comes amid Banglalink’s expansionary phase, when Russian parent company VimpelCom plans to invest around $350 million during the next two years to build the 3G network of the local mobile operator.
Banglalink is the second-biggest mobile operator in Bangladesh by subscriber numbers, with 29 million subscribers at December 31, 2013. Moody’s expects the company’s revenues to grow by 10% in 2014 and 5% in 2015, supported by an increase in subscriber numbers and growth in data revenue.
“In many ways Bangladesh is a fundamentally attractive market for a telecom company,” said Sandra Chow, credit analyst at CreditSights, an independent financial research company. “Mobile penetration is still very low, around 72% based on reported figures, leaving plenty of room for growth. This compares with a penetration rate of over 100% in other developing Asian countries.”
Banglalink’s bond received good quality investor participation. Asset and fund managers subscribed to 72% of the telecom company’s papers, while financial institutions and private banks accounted for 11% and 17%, respectively, according to the term sheet.
Strong parent company
VimpelCom, a Russian phone carrier and one of the world’s largest telecom operators, indirectly owns 51.9% of Banglalink through Global Telecom Holdings. The Bangladeshi company’s stronger parent increases the group’s access to financial markets and banks, said a credit analyst. Public shareholders own the remaining 48.1%.
“VimpelCom would be likely to step in to provide support for Banglalink in the event the Bangladeshi telecom company were to experience financial stress,” Chow said. “From a long-term perspective, we expect that VimpelCom, and particularly its largest shareholders, may not view Banglalink as a key core asset. However, bondholders are protected from the potential loss of shareholder support by change of control language on the new notes.”
Although VimpelCom is likely to provide backstop support, it currently faces considerable uncertainty thanks to the geopolitical tensions between Russia and Ukraine in Crimea.
As such, if Banglalink were to see urgent need of support in the near-to-immediate-term, the capacity for VimpelCom to provide it could be limited. Also, the parent company does not provide an explicit guarantee for these notes.
In the secondary market, the telco's bond price has traded up slightly to 100.29, with its yield tightening to 8.553%, according to Bloomberg data.
Citi is acting as the sole bookrunner and lead manager of the offering.