Under the joint lead management of Credit Suisse First Boston and Morgan Stanley, the Ba3/BB- credit is currently putting the finishing touches to its critical de-leveraging exercise, with international presentations now expected to kick off at the beginning of next week, most likely starting in Singapore on Monday followed by Hong Kong on Tuesday.
PLDT has $1.610 billion debt coming due on a consolidated basis between 2002 and 2004 and its financial re-habilitation depends on the completion of the transaction, which was originally scheduled to launch last September, but was withdrawn after the attacks on the World Trade Centre in New York.
Since that time, PLDT's spreads may have veered out past the 1,000bp mark and back to 500bp again, but the structure of the deal has remained much the same. The company will launch a $329 million cash tender to extend its maturity profile by re-purchasing its June 2003 and June 2004 bonds and will fund the exercise via a $350 million 10-year 144a bond.
What has changed slightly so far is the size of the new bond offering, which is $100 million larger than envisaged last September. What may also yet change are the tender prices which have not been announced and may be slightly more aggressive than anticipated because of the extremely strong underlying market tone for Asian high yield credit.
The secondary market trading levels of the June 2003 and June 2004 bonds clearly show that the market has already discounted the success of the tender offering and many participants believe that both issues are almost fully valued at current levels. Some also argue that while the leads need to make sure that the deal is a success, market conditions may give them the confidence to opt for a less generous pick-up.
In September, lead managers CSFB and HSBC offered investors a roughly three-point pick-up to tender the 2003 bonds and a four-and-a-half point pick up for the 2004 bonds. At the time, the former was trading on a cash bid of about $98 and the latter just below par.
However, to avoid volatility in the Treasury market, investors were offered a fixed spread over Treasuries rather than cash. This translated to a spread of 350bp over Treasuries for a $125 million 8.5% June 2003 bond then bid at 580bp over on a yield of 9.4% and 400bp over Treasuries for a 10.625% bond then bid at 636bp over on a yield of 9.76%.
In a relatively straightforward tender the leads would expect to achieve a tender ratio of about 50%, a total of $164.5 million, with the remainder of the proceeds from the concurrent 144a bond used to pay down additional debt as it came due.
Currently, PLDT's 2003 issue is trading on a cash bid price of 98.625% to yield 9.69% or 626bp over Treasuries, while the 2004 is trading on a cash bid of 100.75% to yield 10.21% or 677bp over Treasuries.
The strong tone for Asian credit was amply demonstrated two weeks ago by the success of a $200 million issue Globe Telecom, which launched a ten non-call five offering on an issue price of par and coupon of 9.75% to yield 442bp over Treasuries. With a Ba3/BB rating, Globe is rated only one notch higher than PLDT by Standard & Poor's and at the same level by Moody's. However, while Globe was able to price its new bond at an extremely aggressive 50bp premium to the interpolated sovereign curve, PLDT's benchmark 2009 bond is currently trading at a 268bp premium to it.
Globe's success in terms of the investor psychology and momentum its deal generated have established exactly the kind platform which PLDT should be able to exploit and many houses have consequently been advising their clients to consider a credit extension trade. PLDT has historically averaged a 125bp to 175bp premium to the sovereign and investors have been advised to switch out of the latter and into the former, which is still trading much wider at the long end of its maturity curve relative to the short end.
In terms of the group's benchmark April 2009 issue, PLDT is trading on a bid/offer spread of 568bp/542bp to yield 10.88%. By contrast the Republic of the Philippines March 2009 bond is currently being quoted on a bid/offer spread of 299bp/288bp to yield 8.2%.
With about 20bp on the curve per annum, these trading levels suggest that a new PLDT 10-year issue would price to yield around 11.5%, subject to the imposition of a new issue premium.
