Indika Energy, an Indonesian coal miner, returned to the international bond markets for the first time in over four years this week, raising $265 million that it will use to refinance outstanding debt.
The company offered investors a deal that was as high-yield as you can get — it has a triple-C rating from both Moody's and Fitch. But that did not stop Indika generating more than $1.7 billion at the peak order book level.
That may be because Indika's credit rating is on the way up. In a March 26 report by Fitch, the rating agency pointed to a successful bond issuance as being a good omen for a company. Fitch said it was likely to upgrade Indika's rating to B- if the bond was successful. Moody's, for its part, said much the same, predicting an upgrade to B2.
The bond was not the only factor analysts and investors were watching. Rachel Chua, a credit analyst at Moody’s, pointed to "meaningful contract wins" at Tripatra and Petrosea, two subsidiaries of the company. Bankers, meanwhile, pointed to the recent surge in the price of coking coal, which jumped 15% on Monday — the same day that Indika closed its deal.
“A recovery in coal prices seems to be an enticing prospect for investors,” said a syndicate banker close to the deal. “Investors like the idea that the company is using the proceeds to refinance outstanding debt instead of expanding its balance sheet.”
Tag team
As part of the roadshow, Indika executives split into two teams. One travelled to Hong Kong, Singapore and London, while the other visited investors in Los Angeles, Boston and New York. During the three-day marketing campaign, the company met 130 investors and garnered $850 million worth of early interest.
The leads — Citi and JP Morgan — went out with initial price guidance at “the 7.5% area” on Monday, before tightening the new sale to 5bp each side of 7%. Final pricing of the April 2022 bond was fixed at 99.688 on a coupon of 6.875% to yield 6.95%, according to a term sheet seen by FinanceAsia.
“The final pricing of the new deal was a huge success for the issuer after tightening the deal by 55bp, which is one of the biggest tightenings from initial guidance in Asia this year,” the syndicate banker said.
Investors did need to look far to gauge fair value. Indika's outstanding $500 million 2023 note was trading at 94.75 on a yield of 7.35% on Monday, suggesting that the new deal was priced inside its outstanding curve in the secondary market. The bond came around 12.5bp inside the curve, a banker said.
Another comparable was Buma’s recently issued 8% $350 million 2022 bond, which was trading on a yield of 6.85%. Buma is Indonesia’s second-largest coal mining company with a Ba3/BB- rating by Moody’s and Fitch.
In the secondary market, the new bonds were hovering around their reoffer price on Wednesday, trading on a 99.65/99.8, according to market data.
Despite tapping the 144A investors, the majority of the Indika bond was sold to Asian accounts, which took 65% of the deal. Investors in the US took 19% and those in Europe, the Middle East and Africa were allocated the remaining 16%.
Fund managers were allocated 82%, banks and private banks 11% and pension funds and insurance companies the remaining 7%.
The company will use the proceeds from the debt sale to redeem $171.4 million worth of its 2018 bonds and repay up to $35 million of a credit facility, as well as for other general corporate purposes.
