From the outset, the sale of the B-/B- (S&P/Fitch) credit was considered a difficult task given the infrastructure, energy, engineering and construction firm's weak financial position, high client concentration risk, and its interests in high-risk businesses such as property projects in Libya and Pakistan and oil and gas exploration in Indonesia.
Indeed, due to the complexity of the credit, the borrower obliged potential investors with more than 50 one-on-one meetings.
ABN AMRO ended up printing the deal at the wider end of the 12.25% to 12.50% guidance, and the final size of $220 million was in the middle of the proposed $220 million to $250 million size range. Final pricing came in at par on a coupon of 12.5%, equivalent to 777bp over US Treasuries.
The deal closed 1.5-times oversubscribed, with a total of 35 accounts being allocated paper. Geographically, US-based investors bought 37%, Asia took 35% with approximately half of that staying onshore, Europe took 27%, and the remaining 1% went to other jurisdictions. In terms of investor type, funds bought the majority of the deal, taking 56%, insurers took 16%, banks 14% and hedge funds 14%.
This is the first sole led deal for ABN AMRO following the collapse of Ocean Grand, which was also an ABN AMRO sole led transaction. Indeed, many in the market are saying that the Dutch bank has taken on yet another troublesome credit with Ranhill. It was certainly no easy achievement getting this deal printed.
One of the major concerns surrounding the deal was RanhillÆs holdings in unpredictable markets like Sudan, Pakistan, and more importantly Libya. In August, Ranhill signed a $1.8 billion housing project contract with the Libyan government via subsidiary Amona Ranhill Construction Consortium. That now accounts for approximately 70% of Ranhill's engineering and construction order book and is the largest contributor to RanhillÆs short- to medium-term cash flows.
ABN AMRO also had to contend with the prospect of selling a credit that had gearing of 9.5 times at issue. Ranhill went into the deal on a rather precarious financial footing. For the year ended June 30 2006, Ranhill's estimated Ebitda to interest was 3.2 times - excluding the arrears on loans from Bank Pembangunan - debt to Ebitda was 9.5times, and the ratio of funds from operations (FFO) to debt was 5.7%.
These ratios appear likely to decline further given Ranhill's contingent concession liabilities, with adjusted debt to capitalisation at 84%, and adjusted FFO to debt at 2.5%.
However, Ranhill does have the benefit of sustainable and predictable cash flow from its diverse utility businesses and concessions in Malaysia, notably the power generation business in Sabah and water treatment and distribution concession in Johor. Despite the moderate financial profiles of these entities, their respective diversity and stability does mitigate some of the risks incurred in RanhillÆs newer business ventures.
Ranhill intends to use part of the net proceeds to refinance existing debt of about $143 million, and a further $42m will be used to fund the purchase of Irredeemable Convertible Unsecured Loan Stocks (ICULS), to be used as additional collateral for bondholders.
The ICULS will go towards a 50% stake in the Senai-Desaru expressway project, an 80km expressway under construction in Johor, connecting Senai in western Johor to Desaru in eastern Johor, of which Ranhill Engineers and Construction is contracted to build.
Ranhill has also placed two coupon payments into escrow for additional security.
Some had expected that the final order book would be dominated by RanhillÆs existing lending banks. It was suggested that the banks would subscribe to the bond in order to see their existing loans - apparently under threat of technical default - prepaid. The bonds would at least have the advantage over the loans of being readily tradable. This remains speculation, however, as the apparent metrics of the distribution do not support that hypothesis.
¬ Haymarket Media Limited. All rights reserved.
