The redemption, which will take place on June 12, covers the outstanding principal together with the interest accrued up to and including that date. It will be financed by bridging loans and internal cash generation.
The early redemption will help reduce the company's financing costs, explains Erwan Teguh Teh, an analyst at PT Danareksa Sekuritas. He points out that the bridging loan is at SIBOR plus 1.5%.
It offers "cheaper new funding and less restrictions on the new covenants," explains Laksono Widodo, an analyst at Macquarie Securities in Jakarta. "Note that the risk premium associated with Indonesia is now lower than when Indofood issued the bonds."
Back in 2002, Indofood, which is controlled by Hong Kong-listed conglomerate First Pacific, issued $280 million of the debt paper with a coupon of 10.375%.
But more recently it sought to redeem the notes early. That's because of last JanuaryÆs termination of the Indonesia-Mauritius Tax Treaty. The end of the tax treaty with the island nation meant the withholding tax doubled to 20% and under the terms of the bond, Indofood had to pay additional tax.
In March Indofood announced it had won an appeal that overrules an earlier UK High Court decision in favour of bondholders who opposed the early redemption. At the time of announcing the appeal verdict, company officials said they had held meetings with the bondholders in Singapore as early as in December, 2004 to try to reach an amicable settlement. However, the company says there were not enough bondholders to reach quorum, so the meeting had to be adjourned.
Listed on the Jakarta and Surabaya Stock Exchanges, Indofood is the leading processed-foods company in Indonesia, selling everything from noodles to cooking oils to snack foods.
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