ItÆs unclear how many orders the arrangers managed to garner. One source heard that the deal attracted just $89 million in demand, of which only $50 million were firm orders, although this is not confirmed. Another stated that the leads had been waiting for one or two key accounts to come in, but that these orders did not materialise.
TrubaÆs plan to raise dollar funds proved problematic from the outset. The deal was scheduled to price almost two weeks ago. When it was announced at the end of April, the company reportedly had a target of $200 million to be priced below 15%. A couple of weeks later these levels were revised, with UBS saying it was building the book for a $100 million to $150 million bond at a price of 17% to 18%, a level never before seen in the public markets in Asia. Despite this, the company still faced difficulties in attracting orders, suggesting that such high levels of return can sometimes send out the wrong signal.
The connection with Asia Pulp and PaperÆs former CFO Hendrik Tee also proved difficult. Tee is currently TrubaÆs president commissioner, but during the 1990s he ran the finances at APP which famously defaulted on $12 billion worth of debt in 2001. ItÆs possible that a number of investors declined to participate in TrubaÆs bond due to that connection alone.
The deal shows that, despite the recent rally in the credit markets, AsiaÆs bond market is not open at any price and investors remain cautious. Moreover, it shows that underwriters are still not prepared to put their balance sheets to work to get a deal off the ground.
A number of rival bankers have said that it would have been detrimental for a company with TrubaÆs profile to open AsiaÆs high-yield bond market, given the potential for such a bond to underperform in a downturn. These bankers are no doubt breathing a sigh of relief that the next in line to price is commodities trading firm Noble Group. The company, which is a cross-over credit rated investment-grade by Fitch and sub-investment grade by MoodyÆs and Standard and PoorÆs, issued guidance yesterday for a $500 million bond sale priced at between 8.5% and 8.75%. Noble concluded its global roadshow yesterday, and is expected to price tonight via Citi and JPMorgan.
NobleÆs pending success is good news, but it can be argued that it isnÆt a ôtrueö high-yield deal û one that is rated sub-investment grade by all three ratings agencies and that contains a high-yield covenant package. NobleÆs covenants in this deal are in line with those of investment-grade credits. The trading firm earlier this month announced a record net profit of $167.1 million in the three months to March, nearly quadruple its $43.8 million profit a year ago, after benefiting from strong demand for food, energy and raw materials.
It is possible that the first true high-yield deal will come from the Philippines. Unified Holdings, a unit of power producer First Gen, is about to embark on a global roadshow via Deutsche Bank and JPMorgan. Likely to come with a bespoke high-yield covenant package, the company is however unrated. "The rating would be constrained by Meralco in the mid-B area, so there is no value in having one," says a source. (Meralco, distributor for greater Manila/ Luzon area, buys the power and sells it to consumers). Otherwise, the standalone credit would be sovereign-ceiling rated - a policy meaning that no private firm in a particular country can receive a rating higher than that of the sovereign.
The credit appears to be solid. The company's power plant has been operating for six years, and has the highest despatch and lowest average cost of any of the Meralco suppliers. Moreover, it has smoothly repaid a good chunk of its original project debt. The company is 60%-owned by First Gen, and 40%-owned by British Gas.
Details relating to the size and the timing of the transaction are as yet unknown.
¬ Haymarket Media Limited. All rights reserved.
