MAXpower, the Indonesian gas-power specialist, hopes to take advantage of the Asian credit market's strong secondary market momentum with the launch of a debut high yield bond.
The B1/B1/B rated group begins roadshows for a $250 million five non-call three-year bond issue on Tuesday, with presentations spanning Singapore, Hong Kong, London and the US. The 144a deal may provide the new issue market with the year's first real test of investor appetite for deals towards the bottom end of the rating spectrum.
And it appears to have been timed well, with some Indonesian high-yield spreads tightening up to 68bp last week. JP Morgan, one of the lead managers on the new deal, believes this spread compression will continue.
In a credit note, published on Monday, the bank said, "In our view the Indonesian high yield sector should continue to gain positive momentum riding on positive sentiment towards the macro side."
Declining global oil prices have cushioned the Indonesian government's decision to scrap fuel subsidies, which took effect on January 1. This fiscal windfall should net an additional $18 billion in savings and spending power over 2015.
Domestic momentum has also co-incided with the positive sentiment generated by the ECB's quantitative easing programme and the Shenzhen government's potential rescue plan for Kaisa.
Both of MAXpower nearest comparables have performed well over the past week as spreads came in across the board. Bookending its ratings are B2-rated Indonesian geothermal power operator Star Energy and Ba2-rated electricity distributor Cikarang Listrindo.
Star Energy has a 6.125% 2020 bond outstanding, which was bid at 99.75% on Monday, equating to a bid/offer yield-to-maturity of 6.18%/5.952%. This is 30bp tighter than where it was a week ago, when it was bid at 6.487%.
The bond started the year at 6.293%.
Cikarang Listrindo has a 6.95% 2019 bond outstanding, which was bid at 105.25% on Monday. In yield-to-maturity terms, the deal was quoted at 5.04%/4.11%.
Unlike most other Asian high-yield bonds, it has consistently tightened over the course of the year. Having started 2015 being bid at 5.439%, it tightened 26bp to 5.17% on January 20 and then a further 13bp to 5.04% on Monday.
The $500 million deal has performed well since its February 2012 launch. Prospective MAXpower investors will be hoping the group can follow the same upwards trajectory and not the performance of other Indonesian energy-related names such as Berau Coal and Indika Energy.
Berau Coal now has a Caa1/CCC- rating and released a re-financing proposal for its outstanding dollar debt a few days ago. Its 7.25% 2017 bond, for example, is currently bid on a yield to maturity of 204%.
Fellow coal producer B1/B+ rated Indika Energy also has 6.375% 2023 bond, which is bid at 13.58%.
PE funds fire up the share register
Global co-ordinators for MAXpower's bond are Goldman Sachs, JP Morgan and Standard Chartered, with Oversea-Chinese Banking Corp as lead manager. The group have close ties to MAXPower.
Standard Chartered's private equity arm owns 7.9%, while MAXpower CFO, Michael Wirawan, used to work at JPMorgan.
Indeed, private equity funds now own close to 40% of the group's shares, led by pan-Asian infrastructure fund SCI on 23.6%. Jakarta-based fund Mahanusa Capital owns 4.3%, while the share register also numbers Indonesian government-backed infrastructure fund IIF and Mitsui Capital.
Standard Chartered Private Equity representatives have told investors that MAXpower hopes to IPO within the next two years. However, they add that this will constitute an additional capital raising and not an opportunity for the private equity funds to cash out.
MAXpower has expanded fast since it first began real operations in 2009 and established a close relationship with government-owned electricity distributor Perusahaan Listrik Negara in 2011. It now has 293MW of installed capacity and hopes to increase this to 600MW by the end of 2016 through BOOT and IPP projects, which have off-take agreements with PLN.
Its rapid expansion has been fuelled by Indonesia's dire lack of infrastructure, which has constrained electricity supply to the 13,000 islands on the archipelago. According to an ADB report, 60% of rural Indonesians still do not have access to electricity.
MAXpower's niche lies in providing small-scale power plants close to the point of demand and more importantly without the need for transmission lines. Because the plants are small scale they can be commissioned very quickly, with one plant deployed within 67 days.
The company now has 24 contracted projects of which 18 are operational. It argues that investors should feel protected by the portfolio's diversity since no one plant accounts for more than 12% of total installed capacity.
Overall, the portfolio has a split of 88.4% Indonesia, with a further 11.6% of installed capacity in Myanmar.
During roadshows, the company is also likely to flag its close relationship with General Electric - it is now subsidiary GE Jenbacher's largest global distributor of power equipment.
In a ratings release, Moody's commented that MAXpower's metrics are in line with the B1 rating threshold. The agency said it expects consolidated funds from operation FFO/debt to improve to 9% to 11% over the next 12 to 18 months, up from 5% in the 12 months to September 2014.
At the end of September, cash Ebitda stood at $20.4 million compared to $15 million at the same point in 2013. The company says total debt/pro forma cash Ebitda will rise to 4.9 times once the bond is issued compared to 3.9 times before hand.
Proceeds will be used to re-finance existing term loans. Eliminating the loan amortization components will free up capital to re-invest in new power projects.
According to PLN, gas-fired capacity should increase rapidly from an estimated 972MW in 2015 to 4.8GW by the end of 2017.
