Indonesian industrial property developer Kawasan Industri Jababeka returned to the debt markets after a 10-year hiatus late last week, raising $175 million through a high-yield bond. The company has had something of a chequered history, having restructured its debt back in 2001 and 2002.
Aside from property development, the company is also involved in electricity generation and distribution through its Bekasi power plant, which is expected to start around October this year.
The company was approved to raise $300 million, but in the end raised $175 million after attracting an order book of $280 million from more than 55 accounts, a sign it struggled to raise demand. The coupon for the five-year non-call-three was fixed at 11.75% and the notes reoffered at 99.117 to yield 12%.
Nonetheless, the fact that a single-B credit such as Kawasan Industri Jababeka — and one with a history of restructuring — managed to close a deal indicated that there is a bid for high-yield bonds.
“It looks like it struggled, but the good news is it got done. We are seeing a return in the high-yield market, but so far, much of it has been heavily sold to private banking accounts and into Asia. We have not seen a large liquid issue being placed out,” said one high-yield specialist. “But there is a strong bid. Accounts have money they need to deploy. Bond markets are back, so we could very well see deals being printed throughout August.”
Given Kawasan Industri Jababeka’s history, foremost on many investors' minds was how it would service its debt payments and whether they could get their principal back. As such, the bonds will amortise by 5% of the issue size on each semi-annual interest payment date, starting from the third year.
According to a source, once the power plant is up and running, the company is expected to increase its recurring income, which currently stands at 21%. This will help it to service its debt payments. Kawasan Industri Jababeka has a 100% offtake arrangement with Indonesian state-owned enterprise Perusahaan Listrik Negara.
No rebate was offered to them, but private banking accounts took a big chunk of the bonds (68%), asset managers 23% and banks 9%. Asian investors outside of Indonesia were allocated 63%, Indonesian investors 22%, European investors 10% and the US 5%.
The bonds surprised the market, trading firmer at 99.25/99.50 in secondary trading on Friday morning. Later that afternoon, they had risen even further to 101.50. According to a source, a number of banks on the street had shorted the bonds as they expected them to trade lower in the secondary market, but given the small size of the deal, there was a limited free-float and few bonds to buy.
The proceeds will be used to refinance the company’s existing Bekasi Power syndicated loan facility, partially refinance its existing Standard Chartered loan facility and capital expenditure related to land acquisition and development of land. The issue is rated B+ by Standard & Poor’s and B by Fitch. Credit Suisse and Standard Chartered were joint bookrunners.
Otherwise, the high-yield market is showing signs of a pickup in activity. China Fishery concluded investor meetings last week. The company is expected to tap the market this week. HSBC, Bank of America Merrill Lynch, Standard Chartered, ANZ, Jefferies, Rabobank and Deutsche Bank are the arrangers. Sound Global is also on the road next week and the meetings are arranged by Deutsche Bank and HSBC.
