Tender's game: BSD cuts costs with bond

Falling bond yields convince Bumi Serpong Damai to redeem an old bond — and to quickly replace it with cheaper funding.

Indonesian township developer Bumi Serpong Damai (BSD) turned to investors with a new bond issue this week, cutting its funding costs after pulling off a tender for an old deal.

The company raised $200 million from a new seven-year bond that becomes callable after four years, giving investors a yield of 5.75%. That was in line with initial guidance of “the 5.75% area”. But the bond priced below par, giving investors that return by offering a 5.50% coupon off a 98.576 cash price.

BSD turned to investors in part to replace around $146 million worth of bonds it had tendered at the start of the week. But the company also wanted to raise some money for capital expenditure, leading to some debate over how much the company originally wanted to raise.

Moody’s analysts said in a research note that the company wanted to raise enough money to pay back an old $225 million bond and additional debt of as much as $75 million for capital expenditure. But a banker close to the deal denied — after the bond was priced — that $300 million was ever a true target for the issue.

A quick tender

The Indonesian company had launched a tender for its outstanding $225 million 6.75% April 2020 bonds in late September — and it was not hard to see why. The bonds were priced at par last year, amid serious complaints from some analysts. But growing investor appetite for Indonesian credits had pushed the cash price up to 106 late September.

BSD, rated Ba3 by Moody’s and BB- by Fitch, seized its opportunity. The company offered investors a one point premium over secondary cash offer prices, launching the tender at a price of 107.50, according to a banker. Some investors either forgot to respond or preferred to hold onto the old deal by the closing date October 10, since $79 million was left untendered.

But the $146 million that was tendered ended up being a good result for the company, allowing it to significantly reduce its fixed coupon costs.

BSD picked Citi and UBS to manage the tender, no doubt in part because those same banks had distributed the bond in the first place, when it was issued in April 2015. But BSD also picked the two banks to manage the new deal.

The old 2020 bond was trading at a mid-price of around 107.5 at the end of Asian trading hours on Wednesday, giving investors a yield of around 3.81%. The new issue was trading roughly flat, in line with the wider Asian high yield universe, said a banker familiar with the deal.

The new issue implies that investors — not renowned for having long memories — have largely forgiven Indonesia's powerful Widjaja family for defaults that happened after the Asian financial crisis. The family owns Sinar Mas Land, the ultimate parent of BSD. That was a major issue for some market observers the last time BSD tried to issue.

The collapse of Asia Pulp & Paper, a company owned by the Widjaja family, was one of the biggest Asian defaults in history — the company and its subsidiaries had more than $11.5 billion in debt before it defaulted in 2001. The default has become legendary among Asian bankers and investors, at least those who were around to remember it. But BSD's success appeared to show that, for the most part, investors have moved on.

In part, BSD made the most of a broader tightening in Indonesian credit. When the company first came to the market with its dollar bond debut last April, Indonesia’s five-year credit default swaps were trading at around 163bp. On Wednesday, the same benchmark was trading more than 10bp tighter, despite price shocks in the second half of last year that pushed CDS prices over 275bp.

BSD owns one of several new towns developed by private companies in Jakarta. The development covers around 6,000 hectares, and only about a quarter of the land has been developed so far, according to the website of parent company Sinar Mas Land.

The issuer is far from the only Indonesian high yield company that has turned to investors in recent months. Cikarang Listrindo and Kawasan Industri both tapped investors in September, and others are lining up. Alam Sutera hopes to be next — funding officials from the company hit the road on Wednesday to pitch a potential bond.

BSD's new bond was issued by Global Prime Capital, a wholly-owned subsidiary.

¬ Haymarket Media Limited. All rights reserved.
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