PT Perusahaan Listrik Negara (PLN), Indonesia's state-owned electricity company, raised $1.25 billion on Friday through its second international bond issue this year.
The issuer of the senior, unsecured 10-year notes is a Singapore special purpose vehicle (SPV) called Majapahit Holding BV, which is guaranteed by Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara. The issue pays a semi-annual coupon of 7.75% and was re-offered at 99.152 to yield 7.875% to a maturity date of January 20, 2020. Initial price guidance late last week had been for an 8% yield.
The coupon and launch yield are both one-eighth of a percentage point higher than that offered on last month's $800 million 10-year deal from Adaro, Indonesia's second biggest coal miner. Adaro is rated Ba1 and BB+ by Moody's and Fitch respectively.
The yield on the PLN bonds translated into a spread of 445.1 basis points over the benchmark US Treasury yield. In August, the company paid an 8.125% yield for a $750 million 10-year bond issue, just scraping inside 450bp over the government yield. So, in absolute terms the new bonds were 25bp tighter, more-or-less flat on a relative basis to where the August deal was priced, and, according to people familiar with the launch, 17.5bp back from where the older issue was trading on Friday.
The deal was launched in a busy week for Indonesian high-yield corporates, with coal miner Indika Energy and coal mine contractor Bukit Makmur Mandiri Utama (Buma) both tapping the US dollar market. A cluster of investment banks also managed a successful 5.5-year offering for Korea auto finance provider Hyundai Capital late Thursday, which paid a 6.099% yield, fixed at 320bp over mid-swaps (that is, 369.4bp over US Treasuries). It was the first triple-B issue by a Korean borrower since the Lehman collapse last autumn.
At the same time, weakness in equity and credit markets apparently forced the postponement of issues by other Asian borrowers, but a narrowing of credit spreads on Friday opened a window for the PLN transaction.
The bookrunners for PLN - Barclays Capital and UBS -- sold the bonds to US investors under the SEC Rule 144A and to international accounts through Reg-S. Final orders amounted to $4.3 billion, placed by 225 accounts. Geographically, an even 38% was sold into both Asia and the US, and the remaining 24% into Europe. By investor-type, asset managers bought the bulk of the deal, with a 45% allocation, banks took 21%, pension and insurance companies bought 15%, retail 14% and a rump of 5% went to others.
The new notes are rated Ba3 (positive) by Moody's and the equivalent BB- (but stable only) by Standard and Poor's. The net proceeds from the bond offering will be used to fund PLN's capital expenditure requirements in connection with transmission and distribution construction projects and for general corporate purposes.
In a note published on August 3, Moody's analyst Jennifer Wong wrote that PLN's rating is "closely linked to the [Indonesian] government's credit quality". PLN is 100% owned by the Ministry of State-Owned Enterprises (MSOE), and has "strategic importance as Indonesia's only vertically integrated electricity utility, as well as the government subsidies to ensure its financial viability and operational soundness".
So, any future upgrade or downgrade in the sovereign rating would lead to a similar move on PLN's rating; and a downgrade would also follow any partial privatisation of PLN or if the government stopped providing subsidy support -- neither of which are likely, according to Moody's.
PLN has a generation capacity of over 25,000MW. It is a monopoly operator of transmission and distribution networks in Indonesia, and controls all public electricity infrastructure and power generation.
