Titan Petrochemicals successfully entered the international high yield market, pricing its inaugural bonds this morning Asian time, and yesterday in the US. The B1/B+ issue from the Ba3/BB- company was $400 million in size and sold at par with a coupon of 8.5%. The bonds have a seven-year tenor and no calls apart from a make whole call at T+100bp. There is also the standard equity claw back provision at 35%.
The company and its sole book runner, Morgan Stanley, had been on a road show to Hong Kong, Singapore, London and then three days in the US, finishing off in Los Angeles. The marketing generated $2 billion of demand and orders from over 200 accounts. Eight anchor orders were for $50 million each and in many ways stabilized the deal. During the road show the range was set at 8.45%-8.55%.
Final allocations saw 45% go to the US, 35% to Asia and 20% to Europe. The 35% Asian take up is unusual, given that Asian investors tend to more credit conscious than others and typically don't like to go much below a BB credit level.
The issuer chose not to upsize the deal and then priced it in the middle of the range, showing a responsible attitude to investors.
The deal allows Titan to extend its debt profile and take on longer term funding than if it had chosen to go to the loan or local bond markets. The decision to go for a high yield deal, with all it attendant costs and covenants, was also tied to the transformational nature of the transaction in terms of its business plan.
With the proceeds of this deal, Titan is looking to double its fleet of oil takers as well as building storage terminals and downstream distribution of oil and oil products in China. The business plan said that the company needed $400 million to do this, and so the decision was made not to raise more than was necessary.
, the deal was certainly helped by the strong demand for high yield in the global markets at the moment, although it did have to navigate through crowded waters. In terms of pricing the nearest comparables are perhaps the other high yield deals that have been issued out of China in the last year, such as Panva Gas (priced at 8.25%), Asia Aluminum (priced at 8%), Chaoda Modern Agriculture (priced at 8%) and Sino Forest (priced at 9%).
Investors were given further comfort with this deal, by Titan entering into two separate 18-month hedging contracts, one to protect against movements in interest rates and one against adverse movements in Very Large Crude Carriers rates.
The bonds broke early this morning and immediately started trading at 100.5-101. Disclosed fees were 2%.