The structure of the transaction, which launched in New York on Friday, is very similar to a $600 million cash tender and global bond offering completed by Malaysian electricity company Tenaga in early March via HSBC and Lehman Brothers. HSBC is also lead manager of the new transaction alongside Credit Suisse First Boston.
The two banks are offering investors a pick-up over the current cash (dollar) price of roughly three points for tendering PLDT’s 2003 bonds and a four-and-a-half pick-up for its 2004 bonds, a relatively generous premium by emerging markets standards. However, to avoid potential volatility in US Treasuries over the life of the tender, at pricing investors will receive a fixed spread over Treasuries, rather than the more standard high yield norm of pricing over cash.
These spreads have been fixed at 350bp for a $125 million 8.5% June 2003 bond currently bid at 580bp over Treasuries or a yield of 9.4% and 400bp for a $204 million 10.625% June 2004 bond, currently bid at 636bp over Treasuries or a yield of 9.76%. The latter bond originally amounted to $214 million in size, but has been subject to subsequent buy-backs.
In a relatively straightforward tender, the leads would normally expect a tender ratio of about 50%, a total of $164.5 million. The remainder of the $250 million being raised from the concurrent 144a bond will be used to pay down debt.
Roadshows for the tender and 10 year bond will begin in Singapore on Tuesday, moving to Hong Kong on Wednesday and Europe over Thursday and Friday. Presentations will then take place in the US over the whole of the following week, with final pricing scheduled to take place on Tuesday 25 September.
Where PLDT differs from Tenaga, is that most of its bonds are still believed to be held by US investors rather than have drifted back to Asia and been asset swapped. For the two leads, therefore, the major problem is likely to be locating investors holding two small and extremely illiquid bonds, one of which was also launched eight years ago.
Where pricing of a new deal is concerned, PLDT will now be forced to pay a yield of over 12% for issuing the new debt. Its existing 10.5% April 2009 bond, for example, is currently trading at a bid spread of 749bp over Treasuries, a yield of 12.35%.
Investors say that although the company recognises it missed a window back in May when spreads were about 100bp tighter, it still feels it is better to undertake the liability management exercise and try and term out is debt now rather than wait out better markets.
Says one, “We got the impression that PLDT believes there is no compelling reason to wait and feels that with the situation in the US worsening it makes more sense to go now, particularly as the issuance calendar in Asia is quite light at the moment. It will also be first time that the new management has gone out to meet investors.”
Rated BB+/Ba2, PLDT had total borrowings of Ps178 billion (3.48 billion) as of June 2001. Over the next few years, re-payment peaks in 2003 when $629 million comes due.