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Indonesian property developer, PT Kawasan Industri Jababeka (KIJA), returned to the international bond markets on Wednesday, completing the new money component of an exchange offer and consent solicitation it had launched on September 13.
The group appears to have timed the liability management exercise well given the strong performance of Indonesian high yield bonds since their year-to-date lows in February.
Since the group announced the exchange offer for its outstanding $260 million 7.5% September 2019 bonds, they have outperformed close comparables such as PT Lippo Karawaci, which was itself last in the market in early August.
At announcement, the 2019 bonds were trading on a bid/offer price of 105.75%/106.75% according to syndicate bankers. Existing investors were offered an exchange price of 107.5%, which represented a 75bp uplift from secondary offer levels.
The new deal has a seven non-call four-year Reg S/144a structure and was priced at par on a coupon and yield of 6.5%.
Bankers said KIJA accepted $165 million of bonds submitted into the tender by the early close on September 27, a 100% acceptance ratio.
A further $20.617 million was raised in new money on the back of an order book of $130 million. This additional amount was raised to cover the company’s fees and deal expenses.
The issuance vehicle was Jababeka International BV, with a guarantee from PT Kawasan Industri Jababeka.
Bankers said the B+/B+ rated group had set out with a hard limit of $200 million and thus has so far has raised $186 million before the tender's formal close on October 12.
KIJA is likely to be extremely happy with what it has achieved given it has not only extended its maturity curve and reduced its cost of funding, but also done so at a time when its existing bonds are trading at an all time high.
In the process, it has been able to marginally weaken its covenants as well. Banker said the fixed charge coverage ratio will drop from 2.5 times to 2.25 times.
"No investor ever mentioned this as an issue," one banker commented. "The only sensitivity surrounded pricing with some accounts pushing for a yield above 6.5%.”
The banker added: “However we did incorporate a 15bp to 20bp new issue premium to where we think fair value is on the bid side. This is an acknowledgement of the fact the tender was open for 10 working days."
Sales desks have reported a strong bid for Indonesian property names in recent weeks. But investors must be wondering how much upside is left.
For example, KIJA’s existing 7.5% September 2019 bonds hit an all time low around the 87.5% mark last October. They have been on a rising trend since then, excepting the global market volatility of January and February.
At this point, they were trading around the 92.25% level.
The bonds are themselves the outcome of a previous tender and consent solicitation in 2014 when KIJA exchanged a $175 million 11.75% 2017 deal for a new 2019 deal. At that point, it achieved a tender ratio of 78.7% after investors submitted $137.78 million of bonds.
Earlier this year, fellow Indonesian property developer, PT Lippo Karawachi attempted a similar tender and consent solicitation, which was scuppered by market conditions. The Ba3/B+ rated credit returned in early August with a highly successful tap of its $150 million 7% April 2022 (callable 2018) deal.
It raised $260 million to pay back the 7% May 2019 issue (callable 2017) on the back of a $1.25 billion order book.
At the time the outstanding April 2022 bond was trading around the 104.22% level. It has since moved up by about a point-and-a-half to trade on a yield-to-worst of 5.89% at Tuesday’s close.
KIJA has therefore offered investors a 61bp spread for an additional 2.5-year maturity extension.
In terms of pure debt metrics, it currently reports better levels than Lippo Karawaci, which has a one notch higher rating from Moody’s.
In June, KIJA reported total debt to Ebitda of 4.3 times up from 3.9 times at the end of 2015 according to S&P Capital data.
Lippo Karawachi equivalent ratio was a much higher 7.5 times up from 6.2 times according to the same data provider. Moody’s says maintaining its ratio is contingent on planned asset sales, which should reduce debt.
S&P has a positive view of KIJA, which recently reported an 83% year-on-year increase in second quarter sales thanks to strong industrial sales, which it specialises in. The agency says the momentum continued during July and August and expects the group to reduce debt to Ebitda to 3.5 times by 2017.
Joint lead managers for the liability management exercise were JP Morgan, Standard Chartered and UBS, the same group of companies, which handled Kawasan Industri's last deal in 2014.
