Sri Rejeki Isman (Sritex) began its global investor roadshow in Asia, the UK and the US on Monday, following Lippo in raising an offshore bond as investor confidence returns supported by improving macroeconomic conditions and positive election developments.
The Indonesian garment manufacturer has mandated Barclays as sole bookrunner and lead manager for a proposed Reg-S/Rule 144A dollar-denominated offering, according to a source familiar with the matter.
Moody’s, which has assigned a provisional B1 rating on Sritex’s bond, expects a proposed issuance size of up to $300 million by its wholly owned subsidiary, Golden Legacy. Proceeds will be used to refinance the group’s roughly $200 million bond as well as for general corporate purposes, adds the rating agency.
Meanwhile, on Friday Lippo Karawaci issued a $150 million eight-year bond callable in the fourth year at a yield of 7%, according to a term sheet.
The recent burst of issuer interest is a result of Indonesia’s improving macro conditions, believe credit analysts.
“Indonesia macro outlook has turned substantially this year,” said Krishna Hegde, Singapore-based head of Asia credit Research at Barclays to FinanceAsia. “There hasn’t been much supply of Indonesian assets … but there is good demand and sentiment has improved. Also, parliamentary elections are coming up on Wednesday and the expectations out of elections are pretty positive.”
Year-to-date dollar issuance from Asia is approximately $35 billion, and Indonesia’s local corporates only account for 1% of that, indicating strong potential for more to come, estimates Barclays.
However, Hegde believes that Indonesian corporate issuance will come in “dribbles” with private companies expected to be relatively more active versus listed companies – that are required to obtain approvals before they are able to issue an offshore bond.
Berau Coal, the fifth largest coal producer in Indonesia, and Pertamina Persero, a state-owned oil and gas company, could also be next in line to raise dollar funding, according to sources familiar with the matter.
Confidence returns
Indonesia experienced a dramatic turnround this year having come off the back of current account deficit problems as well as US tapering fears in 2013, which caused investors to pull out from the country’s bonds and equities. This resulted in higher borrowing costs and a weaker rupiah.
However, investor confidence has returned, driven by a combination of an improving economy and hopes the frontrunner will be the next president – Jakarta governor Joko Widodo, locally known as Jokowi.
Yields on 10-year government bonds have come down to 7.8% from 9% in January, according to Bloomberg. The current account deficit, which widened to 4.4% in the second quarter of 2013 has come down to 3% again.
“The recent announcement of Jokowi running for president has been taken as a big positive,” said a Singapore-based high-yield syndicate banker. “The event risk around the elections is now subdued. So I would expect particularly on the back of Lippo’s issuance, there will be genuinely good interest from investors who would like to have more exposures to Indonesian high-yield sector.”
Lippo’s note, for example, traded up to bid-offer price of 100.5 and 101 respectively from par in secondary markets on Monday, indicating strong demand for the credit from investors, say bond traders.
Lippo’s bond
Lippo’s bond received an overwhelming response from investors, obtaining a total order book of more than $900 million. Asian investors subscribed to 87% of the notes while the rest went to Europe, according to the term sheet. Asset and fund managers snapped up 83% of the company’s papers while other parties took 17%.
As a result of the demand, the company was able to tighten pricing by 25bp to price at 7%, say sources.
The closest comparables for Lippo’s notes were its existing papers expiring in 2022, which were trading at a yield of 6.8% at time of pricing. After adjusting for the curve, the fair value of the company’s new bond would be about 7.1%, suggesting the new notes priced flat to its existing.
“Through the course of the roadshows, investors were impressed with the company,” said a source close to the deal. “As a result, the transaction managed to re-price the entire Lippo curve.”
Eighty percent of Lippo’s proceeds will be used to fund new property development, including hospital and retail malls, while the remainder will be used for working requirements and general corporate purposes, say sources.
Deutsche Bank and Citi were joint global coordinators and bookrunners of the transaction. Other bookrunners include Bank of America Merrill Lynch and Credit Suisse.
