Buma pays premium 11.75% coupon on $315 million bond

After delays and several weeks of negotiations with nervous investors, PT Bukit Makmur Mandiri Utama (Buma), Indonesia's second biggest coal mining contractor, finally priced a $315 million bond deal on Wednesday afternoon New York-time.

But the company was forced to pay a hefty 11.75% coupon to compensate for the leveraged nature of a concurrent share sale and takeover and, perhaps, for the complexity and relatively opaque nature of that takeover. Investors had also been anxious about the role of Hendrik Tee, a former chief financial officer at Asia Pulp & Paper, which famously defaulted on $12 billion of debt in 2001. Tee has allegedly been advising Johan Lensa, Buma's founder and controlling shareholder.

People familiar with the bond transaction couldn't point to any obvious comparable issues in the secondary market.

However, fellow Indonesian coal miner Indika Energy is paying a coupon of just 9.75% for a $230 million seven-year (non-call for four years) deal that priced yesterday through Citi as the sole bookrunner. Indika is rated B2 by Moody's and B+ by Standard and Poor's, which are two notches lower than Buma's split ratings of Ba3 and BB. And PT Adaro, Indonesia's second biggest coal miner, raised $800 million from a blowout 10-year bond issue in mid-October, which paid a yield of only 7.75% (the coupon was 7.625%). The Adaro bond is rated Ba1 by Moody's and BB+ by Fitch.

Investors in the Buma deal had insisted on a capital structure that included a large, covenant-heavy loan component in addition to the bond issue, in order to bring in banks which will ensure those covenants are maintained rather than just monitored, and which will apply continuous assessment through their credit matrices. The covenants include a fixed charge coverage ratio of three-times, restrictions on dividend payments, and limits on the types of transactions the company's affiliates can engage in.

The issuer of the bonds is a Singapore special purpose vehicle (SPV) called Prime Dig Pte, which is guaranteed by Buma. The bonds were re-offered at par and mature on November 3, 2014, but can be called after three years at 105.875, and in 2013 and thereafter at 102.9375. In weak credit markets yesterday, they were trading at 99.625-99.75.