The market waits on Noble Finance high yield deal

The Asian high-yield debt market is hanging its hopes this week on a $150 million five-year trade by IndonesiaÆs Noble Finance.
Citigroup is expected to price Noble Finance's $150 million five-year single-B (S&P/Fitch) rated deal later this week. The lead manager sent out a revised offering circular Tuesday morning (August 15). Heading into the week the market had anticipated a mid-week pricing date, however it now looks like the deal will probably come either today or Friday.

The lead published price guidance in the 11.5% area for the Reg-S/144a deal after it wrapped up roadshows in Europe, the US and Asia. Initially the deal had been worth $240 million but has since been downsized.

It has been a difficult three weeks for AsiaÆs markets in general and the high-yield space specifically. At the moment, the market environment that Citigroup is shopping Noble into is less than favourable. However, if the deal can get done it will go some way in providing a yardstick for high-yield investor sentiment.

At the moment the market has four potential sub-investment grade deals pending; Aside from CitigroupÆs Noble, Deutsche Bank has two Indonesian mandates. One is a downsized $150 million deal for Indonesian media and telco group Media Nusantara Citra (MNC) - that deal had initially been looking at a size of around $250 million û and the other is for paper producer Fajar Surya Wisesa. Similarly Matahari is still waiting for the opportune time to launch.

With the August holiday season in full swing most banks and investors are running their respective desks with skeleton crews. The overall market apathy has been further compounded by the escalating military action in the Middle East and the terrorist plot in London.

Additionally, the regionÆs offshore primary high-yield market has been struggling in the face of increased competition from the private placement market.

However, the biggest blow to the market has come from the Chinese high-yield space, when Ocean Grand last month collapsed following the discovery of ôaccounting irregularitiesö that amounted to the company being downgraded to default status. That was followed up by reports that Chaoda Modern Agriculture, which sold a $225 million five-year deal in February of 2005, was under investigation after grievances were filed about its product quality standards.

Ocean GrandÆs bonds all but collapsed, the notes were trading in the low double digits and have become a target for distressed debt desks around the region. It had launched a $160 million bond in December. ChaodaÆs deal has dropped to the mid 80s range.

Additionally, the Indonesian credits were given no help when MoodyÆs announced that it had revised the outlook on PT Medco Energi B2 ratings to negative from stable.

As such the market has seen a sell-off in secondary trading in recent days, and investors have appeared relatively indifferent towards new issuance, with overall liquidity levels deteriorating.

Without a doubt the Noble deal is no easy sell. Indeed it has already been downsized from $240 million to its current $150 million. Furthermore, the lead will have to overcome some investor concerns regarding the companyÆs ownership structure of the issuer. Noble Finance is a BVI created by Mulia Industrindo.

Mulia Industrindo is controlled by Joko Soegiarto Tjandra, who is currently in negotiations to reach a settlement for $560 million in debt that has been in default since 2001.

The deal is secured by three commercial properties - PT Mulia Intipelangi, PT Mulia Intanlestari and PT Sanggarcipta Kreasitama on a joint basis - all in Jakarta and owned by the Mulia Industrindo group. These three properties are considered the crown jewels of MuliaÆs assets, all enjoy full occupancy and are heavily cashflow positive.

However the deal does boast a strong covenants package that goes someway to see that investor interests are protected. The deal features an assurance that no dividends will be paid during the duration of the bond and a cashflow waterfall structure that provides adequate coverage for interest payment and taxes.

Additionally, the deal's structure separates the three holdings into a separate entity that is not attached to Mulia directly.

In terms of pricing comparables, most bankers have quoted Lippo KarawaciÆs B2/B+ rated $250 million five-year deal. That deal, completed in March, was also issued through an SPV, Lippo Karawaci Finance BV û a Dutch-based finance subsidiary. Lippo, rated one notch higher than Noble, has struggled in the secondary market in recent weeks pushing out some 15bp since mid-July to 10.15%.
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