Indonesia's PLN taps investor demand for long bonds

Indonesian state-owned power company Perusahaan Listrik Negara (PLN) closed a $1 billion 30-year bond early Wednesday morning, demonstrating robust investor appetite for long-dated bonds.

The company, which is wholly owned by the Indonesian government, gathered an order book of $11.5 billion and succeeded in re-pricing its secondary curve.

Following hot on its heels, Thai corporate PTT is rumoured to be looking at a 10- and 30-year dual tranche bond to raise about $1 billion, which could come to market as early as today.

Assuming PTT does launch a dual-tranche bond, other borrowers will be keen to see the size of the spread differential between both tranches. Typically, investors want a spread pick-up for the long-dated tranche, but back in April 2011, Cnooc printed its 10- and 30-year tranche at the same spread thanks to a strong bid for the 30-year bonds.

“There is still ample demand for long-dated bonds,” said a source. “So far, most of the 30-year bonds have come from China or Indonesia, but we could see companies from other countries also looking at it.”

The deal was the first US dollar bond offering for PLN since its upgrade to investment-grade status by Moody’s and Fitch, and it also marked the utility company’s first 30-year offering in more than five years.

It drew a strong reception from Asian investors, which resulted in the books being covered within an hour of the initial price guidance announcement. By the time final price guidance was released at 6.30pm in Hong Kong, the order book was close to $9 billion. The final order book stood at $11.5 billion from more than 380 accounts, with most of the orders coming from high quality buy-and-hold investors.

At the time of announcement, the Republic of Indonesia 2042s and Pertamina 2042s were seen trading at 4.312% and 5.25%. PLN’s new bonds, which mature on October 24, 2042, priced at a yield of 5.35%, 27.5bp inside the 5.625% initial guidance.

After taking into account the curve extension on both comparables, PLN’s new 30-year was priced inside where a new implied Pertamina 30-year would come today, and about 100bp wide of the Republic of Indonesia dollar curve.

Despite the tight pricing, PLN’s bonds rose three points in secondary and were quoted at 101.5 on Wednesday, well above the 98.514 reoffer. “The market is hot, so anything you price now is up” said one syndicate official.

PLN last tapped the dollar market in November 2011 with a $1 billion 10-year bond, which priced to yield 5.625% through the same arrangers: Barclays and Citi.

For its latest deal, Asian investors were allocated 45%, European investors 24% and US investors 31%. Fund managers were allocated 73%, banks 8%, private banks 9%, insurers 7%, public institutions/sovereign wealth funds 3%.

Barclays, Citi, Deutsche Bank and J.P. Morgan are the arrangers for PTT.