True Move offers to buy back high-yield bonds

True Move's tender offer allows investors to “crystallise gains” amid the high-yield rout.
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True Move executives celebrating a mobile banking tie-up with Kasikorn Bank last year
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<div style="text-align: left;"> True Move executives celebrating a mobile banking tie-up with Kasikorn Bank last year </div>

True Move, Thailand’s third-biggest mobile phone operator, is seeking to buy back $690 million worth of high-yield bonds from investors and, at the same time, loosening covenants to give it greater financial flexibility. Deutsche Bank is the sole dealer manager and solicitation agent.

True Move is the mobile phone subsidiary of True Corp, which is listed on the Stock Exchange of Thailand and also runs cable TV and internet businesses. Charoen Pokphand Group holds a 39.2% stake.

True Move is asking investors to tender $465 million of 10.75% bonds due in 2013 and $225 million of 10.375% bonds due in 2014. Both sets of bonds are rated B2/B-. The company has not publicly stated which covenants it is loosening, but it is said to be focusing on debt limiting and guarantor covenants.

“The company is embarking on this tender offer as it wants the financial flexibility to grow its 3G business,” said one person familiar with the matter. “The current covenant restrictions don’t allow it to do so.”

The company is offering a cash price of 107 to encourage investors to tender their bonds, plus an early-bird offer of two points for both sets of bonds if tendered by September 20. The offer came at a premium to the cash price of 105/106 at which the bonds were trading prior to the launch, though they had rallied to 108/110 by yesterday afternoon. The offer expires on October 4.

“True Move is a high-yield bond and the tender offer allows investors to crystallise the value of the gains amid current market conditions,” said another person familiar with the deal.

The loosening of covenants by Asian high-yield issuers is a touchy subject with investors who tend to be located all over the world and don't always have a strong relationship with the borrower. They can feel pressured to loosen covenants in exchange for a fee, rather than join a minority that does not consent and gets outvoted.

In True Move’s case, it is keen to refinance high-yield bonds with covenants that are said to be restricting its growth plans. It has also managed to secure Bt48.9 billion ($1.6 billion) worth of loan facilities for up to 10 years from a group of four banks — Siam Commercial Bank, Krung Thai Bank, United Overseas Bank and Export-Import Bank of Thailand. The cost of funding for the loans is lower than the bonds.

Meanwhile, investors holding the bonds will have to decide what to do. Nomura analyst Pradeep Mohinani suggests that investors should tender their bonds. “We believe investors opting to not tender run the risk of being saddled with a credit that has significant execution risks, weaker creditor protection with new bank debt raised and higher leverage,” said Mohinani in a fixed income trading note.

He notes that if the company exercises its make-whole call — a call provision allowing it to pay remaining debt early — this would result in a “substantially” higher price. But, arguably, there is no guarantee it will exercise that call, particularly if the majority of investors vote in favour of loosening covenants. A further disadvantage for investors is that True Moves’ outstanding bonds are fairly illiquid, which means they could get stuck holding the bonds if they do not tender.

True Corp, the parent, posted a net loss of Bt1.25 billion ($46 million) during the second quarter ended June 2011 and its financial metrics are weak.

Bankers pitched for the buy-back deal some time back, though it was no surprise that the mandate went to Deutsche Bank, which has a long-standing relationship with the client, and acted as a joint bookrunner with Citigroup for the $465 million bond and handled the $225 million bond on a sole basis. “We pitched for the deal too, but Deutsche had the advantage of knowing who held the bonds,” said one rival banker.

Deutsche Bank also has the credentials on the liability management front, having completed recent consent solicitations for Chandra Asri, Indosat and Lippo Karawaci.

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