Speciality chemicals group, PT Sulfindo raised $151 million yesterday (December 7) from an equity-linked deal led by Merrill Lynch. The transaction represents the largest pre-IPO CB from South East Asia and joins a small but growing band of equity-linked deals from Indonesia.
So far this year, there has been one highly structured exchangeable for coal operator Bumi Resources that raised $200 million via JPMorgan and a smaller $50 million convertible for shipping company Berlian Laju Tanker that raised $50 million via Deutsche Bank. Prior to these two transactions, there had been nothing from the country since the financial crisis in 1997.
Sulfindo's deal is less structured than Bumi's deal, but investors have extracted a high price in return for an unsecured offering. The three-year transaction has an issue price of par and redemption price of 106.975%, with a coupon of 10% and initial yield of 12%. The coupon will also step up by 50bp at the end of next year and by a further100bp ever six months thereafter.
Pricing is high, but the company was prepared to accept it in order to free itself from restrictive bank covenants. It also shows how international investors are becoming more willing to move down the Indonesian credit curve. Only a year ago international banks were still demanding yields in the mid to high teens for short-term loans by Indonesian mid-caps, or larger groups with 'colourful' track records.
Sulfindo believes it will be able to secure an IPO on the Jakarta Stock Exchange within the next year and has an option to mandatory redeem a portion of the notes if it is successful. On completion of an IPO, two tranches of warrants kick in that will enable investors to enter the stock at a 15% discount to the IPO price.
The warrants will equate to 25% of the company's issued share capital and have a series of strike prices to prevent the secondary market being swamped with paper on completion of an IPO. Under the terms of the staggered conversion, investors can cash in 25% of the deal in the first 44 days, followed by 75% thereafter. The warrants will expire 18 months after an IPO.
The transaction was only allocated to about nine investors, nearly all of which were hedge funds. Every single investor personally visited the company, which has a woman President, CEO and CFO.
Sulfindo has three main assets: a chlorine, caustic soda and PVC plant whose main customers are Unilever Indonesia and Malaysia's Petronas. The company was originally owned by the Salim conglomerate, but was put for sale by IBRA after the financial crisis and sold to an offshoot of Hong Kong's Emperor Group for $41.2 million in 2001.
It was then on-sold to a group called Big Wings, which is owned by Susanna Tanojo.
In 2004, the company made EBITDA of $40 million and is forecasting that this will rise to $50 million in 2005 and $70 million to $80 million in 2006. Proceeds are being used to re-pay expensive secured debt, whose covenants have limited the company's operational flexibility.
Of the amount raised, $131 million will re-pay debt and $20 million will be used as the down payment on a power plant, which is being built to service the plants. The company now has about $200 million in debt, equating to a relatively high debt to EBITDA ratio of four times.
