Tower Bersama Infrastructure sold a $350 million seven-year bond that is callable in year four on Tuesday evening, accessing Asia’s debt capital markets for the first time in two years.
The Reg S-only offering of the Jakarta-based provider of telecoms infrastructure to wireless carriers priced at a yield of 5.25%, which is a hefty 50bp tighter than its initial price guidance area of 5.75%, according to a term sheet seen by FinanceAsia. It is also priced at the tighter end of the final price guidance range of between 5.25% and 5.375%.
The issuance — the second non-Chinese junk bond so far this year — was buoyed by investors’ need to diversify away from the high-yield property space that has seen sparks of volatility due to the Kaisa complex.
“We love the telco tower business and see [Tower Bersama] as a superior credit to most of the above comparables,” said a Hong Kong-based credit analyst. “With China property still on the nose for many investors, we think this is another case where investors will be happy to pay up for scarce, high quality, non-Chinese high yield exposure.”
Moreover, although bond investors have scrutinised Indonesia’s economy that has struggled with a persistently high current-account deficit and weakening currency, investors are now keen to ride on Indonesian story thanks to expectations of economic reforms under the new administration of President Joko "Jokowi" Widodo.
Orderbooks for Tower Bersama's bond exceeded the $1 billion market by noon in Asia, as investors scramble for the rare offering, a source close to the deal said. By the time the deal priced, orderbooks touched $1.7 billion from over 200 accounts.
Asian investors subscribed to 67% while the rest went to European investors. Fund managers purchased 57% of the notes, followed by private banks with 25%, banks 9%, insurers 7% and others 2%.
Another Indonesian telecommunication tower company Solusi Tunas Pratama — rated BB- by Standard & Poor’s — is also planning a US dollar Reg S-only bond issuance. BNP Paribas, HSBC, ING Bank, JP Morgan Chase and Standard Chartered have been mandated to execute the proposed offering.
India's Delhi International Airport Ltd (DIAL) sold Asia’s first high-yield bond last Tuesday, pricing the $288.75 million debut offering at a re-offer yield of 6.125%.
Shimao Property — the first Chinese developer to access the high-yield market — is also in the market with a dollar-denominated benchmark bond. The Ba3/BB-/BB+ rated note will be used to refinance its existing debt, including buying back all or part of its paper expiring in 2018, according to source familiar with the matter.
Comparables, ratings rationale
The nearest comparables for Tower Bersama’s bond includes its existing notes expiring in 2018 that were trading at a yield-to-worst (YTW) — the lowest yield an investor can expect when investing in a callable bond — of 4.45% prior to announcement, according to sources familiar with the matter.
Other comparables include Indonesian property company Lippo Karawaci and DIAL’s outstanding bonds maturing in 2020 and 2022 respectively that were trading at YTW of 5.4% and 5.7%.
Fitch has rated the notes issued by Tower Bersama’s subsidiary, TBG Global, at the same level as the parent despite its structural subordination to debt at the operating company level, which generates all of the group's revenue.
“We have not notched down the proposed notes because we believe that there will be a strong creditor recovery in a distress scenario as a high proportion of the group's operating cash flows are contractually locked in,” said Nitin Soni, credit analyst at Fitch, adding that Tower Bersama has net operating cash flows at $2.2 billion at end-September 2014.
In addition to its high cash flow visibility, Tower Bersama’s liquidity is also supported by strong access to funding from banks and bond markets, both local and overseas, evidenced by the November 2014 raising of $1.3 billion of unsecured bank borrowings.
Proceeds of the BB-rated bond will be used to refinance Tower Bersama’s outstanding debt, including the outstanding amount under the US$300 million revolving loan facility. Excess proceeds will then be used to refinance the outstanding amount under a US$300 million credit facility (Facility C) maturing in November 2015.
Tower Bersama’s was established in 2005 and in 2010 the company listed on the Indonesian Stock Exchange, where its current market capitalisation is IDR45.2 trillion ($3.6 billion) with 30% owned by Wahan Anugerah Sejahtera and 28.8% owned by Provident Capital Indonesia.
ANZ, Bank of America Merrill Lynch, Citi, Credit Agricole and UBS were the joint global coordinators and bookrunners of the transaction. Other joint bookrunners include BNP Paribas, DBS, CIMB, HSBC, Mitsubishi UFJ Financial Group, OCBC, Sumitomo Mitsui Banking Corp Nikko and UOB.