Two single-B rated Thai credits hope to follow G-Steel's lead into the international bond markets over the coming few weeks, with plans to raise up to $500 million between them. ABN AMRO and Deutsche Bank have been mandated for a proposed $250 million offering by B- rated pulp and paper producer Advance Agro, while JPMorgan will lead a $225 million Reg S/144a bond for B2/B+ rated telecom operator True Corp.
The latter will begin roadshows next week, starting in Singapore on November 28, followed by Hong Kong on November 29, before moving to Boston, New York and the US West Coast. Proceeds from the seven-year non call four deal will be used to refinance a portion of the company's outstanding Thai Baht bonds maturing at the end of the year and in 2008.
In its ratings report Standard & Poor's commented that, "True Corp remains highly geared, with debt to capital of around 96% as at Sept. 30, 2005, due to a low equity base. The company had been affected by foreign-exchange translation losses following significant currency depreciation during the last Asian financial crisis. Debt to annualized EBITDA at the same period was 5.2x."
It also said the company has limited room for significant debt reduction in the near term, given its high capital expenditures and the recent proposed acquisition of the shares it does not currently hold in domestic pay-TV provider, United Broadcasting Corp for about Bt12 billion ($300 million). It said that cash flow protection measures are weak, but should improve as the company benefits from economies of scale at its wireless business.
Market specialists believe the deal may be able to price around the 9% range. When G-Steel came to market in late September, it faced a difficult reception and had to downsize its transaction to $100 million. The B1/B+ rated group priced a five non-call three deal at 98.116% on a coupon of 10.5% to yield 11% or 688bp over Treasuries.
Credit analysts say that both True Corp and Advance Agro may prove a tought slog for their respective investment banks as the market has been reluctant to take up lower rated non-investment grade offerings of late. The failure of deals like Sateri, Megasteel, and Fosun have shown that investors have become highly selective.
Bankers say that Advance Agro is likely to be particularly tough since the company is also in a technical default on its outstanding yankee bonds. Earlier this month local rating agency TRIS issued a credit alert with a developing designation after the company committed a technical default under the indentures of its $111.35 million 13% 2007 bonds.
The agency said this could lead to liquidity problems and trigger a cross default under a Master Override Agreement the group has with its local banks. Advance Agro is currently in negotiations to re-finance up to Bt14 billion in debt.
The B- rated company (Standard & Poor's) was one of the last Asian corporates to execute a transaction before the Asian financial crisis completely shut the debt markets. Ironically, its November 1997 deal had a launch spread of 911bp over Treasuries.