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Corporates lead fund-raising forays in bond market
Indonesia’s independent power producer (IPP), Star Energy Geothermal (Wayang Windu), on March 21 priced a US$350 million bond issue to fund the repurchase and redemption of its existing notes. The company was able to take advantage of the stable market window and overcame heavy competing pipeline as it had to contend with four other Asian US dollar bond deals launched on the same day.
Chito Santiago 1 Apr 2013

Indonesia's independent power producer (IPP), Star Energy Geothermal (Wayang Windu), on March 21 priced a US$350 million bond issue to fund the repurchase and redemption of its existing notes. The company was able to take advantage of the stable market window and overcame a heavily competing pipeline as it had to contend with four other Asian US dollar bond deals launched on the same day.

The Reg S/144A seven-year non-call four deal was priced at par with a similar coupon and yield of 6.125%. This represented 50bp inside the initial guidance of 6.625%. Concurrent with the issue, the company has launched a tender and consent solicitation exercise with an early consent deadline on March 22.

Before launching the transaction, Star Energy conducted a one-week roadshow in Hong Kong, Singapore, London, New York, Boston and Los Angeles, and met several investors through one-on-one meetings. It announced the transaction at mid-morning, Asia time, with an initial price guidance of 6.625% area, after which the order book grew swiftly to over US$3 billion by London open.

The strong investor demand has enabled the joint bookrunners and lead managers - Barclays and DBS Bank - to tighten the final price guidance to 6.25% area, before finally pricing the deal at 6.125% in the New York morning.

The final order book amounted to US$4 billion from over 200 accounts with 46% of the bonds allocated in Asia, 33% in Europe and 21% in the US. Fund and asset managers accounted for the bulk of the paper at 86%, with the remaining 8% taken by banks and private banks, and 6% by insurance companies and public institutions.

Fitch Ratings, which assigned a B+ rating to the bonds, says the proceeds will be largely used to refinance Star Energy's outstanding senior secured US dollar notes of US$337.5 million, of which US$12.5 million are due in 2013, US$25 million in 2014 and US$300 million in 2015.

As part of the refinancing process, the company will have the option of repaying US$85 million of its US$102 million subordinated shareholder loan immediately and a further US$1 million per annum thereafter. Fitch says it expects the repayment of the shareholders' loan to be made out of Star Energy's existing cash at hand - US$139 million as at end-December 2012 - and as such does not expect the company's total indebtedness to change materially.

Tower Bersama bonds 

Star Energy is an IPP located at Wayang Windu in West Java. It commenced operations in 2000, and owns and operates one fo the largest geothermal power stations in Indonesia.

In another deal, Indonesia’s independent tower operator, Tower Bersama Infrastructure (TBI), printed on March 25 a US$300 million issue that equally garnered robust investor demand.

The Reg S/144A five-year deal was priced at par with a similar coupon and yield of 4.625%. The bonds, issued through TBG Global, generated a total orderbook of over US$4.1 billion from 244 accounts, with 65% of the bonds sold in Asia, 21% in the US and 15% in Europe.

Proceeds from the bond issue, according to Moody’s Investors Service, will be used largely to refinance an existing debt – specifically the outstanding revolving credit facilities of US$50 million under Tower Bersama Group’s US$2 billion debt programme, and loans at the holding company of US$95 million. The remaining funds will be used to finance business growth.

The deal features a standard high-yield covenant package, including a debt test of debt-to-annualized cash flow of 6.25×, stepping down to 5.75× after June 30 2016.

By type of investors, fund managers bought 68% of the bonds, private banks 12, banks 10%, insurance companies 7%, and sovereign wealth funds and other investors 3%.

Citi, Morgan Stanley and UBS were the joint global coordinators for the deal, as well as joint bookrunners, along with ANZ, Crédit Agricole CIB, DBS Bank and Mitsubishi UFJ Securities. Acting as co-managers were BNP Paribas, CIMB Bank, Chinatrust Commercial Bank and OCBC Bank.

As Moody’s points out, under the bond terms, TBI retains the flexibility to tap on its US$2 billion debt programme to finance future business growth and acquisitions. It notes that acquisitions have been central to TBI’s growth strategy. In August 2012, the company completed the purchase of 2,500 towers from Indosat for a total consideration of US$406 million – its largest acquisition to date.

Property company Alam Sutera Realty joined Star Energy and Tower Bersama in the bond market as it raised US$150 million, but it was a bit of a struggle to be able to print the deal.

The company on March 21 priced a five-year non-call three deal amounting to US$150 million, which was priced at 99.058% with a coupon of 10.75% to offer a yield of 11%. It had difficulty attracting demand as the orderbook amounted to just US$230 million. Such a small trade has investors concerned about the bonds’ liquidity in the secondary market.

Morgan Stanley and UBS acted as the joint bookrunners for the transaction.

Standard & Poor’s, which assigned a B rating on the notes, says the proceeds from the transaction will be used partly to refinance certain domestic loans, with the balance for replenishing its land bank and working capital purposes. It views Alam Sutera’s debt appetite as aggressive, noting that apart from the latest bond offering, the company raised a similar US$150 million in March 2012 to fund the acquisition of land and assets.

Nonetheless, S&P says the company has sufficient room to increase debt without undermining its aggressive financial risk profile.

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