According to market observers, demand for Asian bonds is still good. Bank of East Asia, which priced last week at 52bp over Libor, was trading on Monday at 49bp over Libor, while the NIS Group is trading at a spread of 280bp over Treasuries, after pricing at 288bp.
By Monday this week, Hynix, the Korean semiconductor manufacturer rated Ba2/BB-/BB by Moody's, S&P and Fitch, had garnered over $2 billion in demand for its $500 million Reg-S 144a 10-year non-call five bond. Price guidance was released at 8.125% (+/- 0.125). The deal's managers û Citi, Credit Suisse, Goldman Sachs, Korea Development Bank and Merrill Lynch û deployed two teams for the roadshow. Investor presentations took place in Hong Kong, Singapore, Los Angeles and Boston, and wrapped up yesterday in the UK and New York.
Meanwhile, state-owned Indonesian electricity utility, PLN, is due to issue $1 billion in a dual-tranche 10- and 30-year deal via sole bookrunner UBS. The B1-rated company is adamant it will not upsize the deal. The roadshow travelled to London on Monday, taking in New York yesterday, and continuing in Boston today. Investors worried about upcoming supply of PLN bonds as a result of its fast track funding programme through to 2010 will be reassured that the company has no plans to tap the international bond market again this year.
Similarly CPP, one of the worldÆs largest vertically-integrated shrimp producers and processors, has reversed its plans to partly fund the acquisition of distressed shrimp-farmer PT Dipasena Citra Darmaja through debt, as previously announced in CPPÆs credit rating report from Fitch.
The report, released ahead of the companyÆs upcoming Reg-S, 144a US-dollar senior secured bond via Barclays Capital (size and tenor unconfirmed), stated that CPP had become increasingly leveraged as a result of the ongoing acquisition of the Dipasena group of companies. Sources state that CPPÆs total debt-to-Ebitda is four times, while its net debt-to-Ebitda is three times. The $189 million acquisition is now due to be 100% equity-funded.
The acquisition worries some bond investors who speculate that the loss-making Dipasena Citra Darmaja will take longer to turn around than predicted by CPP. The Indonesian government took control of Dipasena from Gajah Tunggal Group tycoon Sjamsul Nursalim following the countryÆs financial crisis in 1998. According to sources, it has three times CPPÆs harvesting shrimp capacity (from the pond perspective), but delivers only a third of its output. It is allegedly nine times less efficient than CPP.
However, Dipasena's assets are located adjacent to CPPÆs own major operations, giving CPP an intimate knowledge of the site and of its capacities. One source says: ôCPP has brought in 200 aqua-culturalists, four different contractors and 10% of the ponds have been sampled as part of due diligence. CPP has conducted a full research, and a thorough cost-analysis. That's why the company is confident that the revitalisation plan will largely be completed within 12 months, while allowing a six-month buffer.ö
The source continues to say that investors should understand that DipasenaÆs 2007 Ebitda contribution to CPP is likely to be minimal, since pond system revitalisation is done in phases. DipasenaÆs positive impact on CPPÆs balance sheet should kick in towards the second half of 2008 as these phases are completed. CPP has already ventured into a lease agreement with Dipasena to start putting CPPÆs operation into effect.
Investors have also expressed reservations about the involvement of Asia Pulp and PaperÆs former CFO with CPP, Hendrik Tee. APP defaulted on $12 billion worth debt in 2001. Sources close to the deal are attempting to allay these concerns by saying that he is only a paid advisor at the shareholder level, with no legal title or position with CPP or any of its operating subsidiaries.
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