Asia-Pacific
Winner: PT Adaro Indonesia
Issuer: PT Adaro Indonesia
Size: $800 million
Date of issue: Oct 15, 2009
Ratings: BB+/Ba1 (Fitch, Moody’s)
Maturity: Oct 22, 2019 (callable on Oct 22, 2014)
Pricing: 7.625%
Bookrunners: Credit Suisse, UBS, DBS Bank
In October, Indonesia’s second largest coal producer PT Adaro launched Asia’s largest high-yield bond of 2009, which was also the biggest US dollar corporate bond from an Indonesian issuer since June 2007. The transaction was also the first 10-year US dollar private sector corporate bond from Indonesia.
The deal met with an outstanding reception, with the final order book swelling to $5.75 billion from 262 investors across US, Europe and Asia. “Execution was as good as any you have seen in the high-yield market this year, launching at the end of a five-day roadshow with a larger size and tightened pricing, in line with global best-in-class yields,” says Fergus Edwards, head of Asian debt capital markets at UBS.
The bookrunners focused on Adaro’s credit fundamentals and looked to secure geographical diversification by holding roadshows in Hong Kong, Singapore, UK and US.
Asian investors were familiar with the company, while international investors knew the commodity sector and were able to recognise the true value of the credit. “We wanted to take out any emerging market premium to the deal and price to global BB-rated commodity comparables,” says Edwards.
On demand
Feedback from Asia was initially wide of the company’s cost target, as investors were looking more at regional rather than global comparables. US accounts, however, were focusing on global comparables, allowing the deal to ultimately tighten pricing, notes Derek Armstrong, head of debt capital markets, Asia, at Credit Suisse.
“There was global tension, with Asia driving volume and the US driving pricing, and it worked beautifully. Demand was instant and, given the difficult year, not many people at start of 2009 would have thought such a size would have been possible from Indonesia,” he says.
Following considerable interest, initial price guidance in the low 8% range for a $500 million deal was subsequently revised to a 7.625% coupon and an $800 million issue. US accounts purchased 39% of the transaction, Europe 35% and Asia 26%. Fund managers bought 68% of the deal, a strong private banking bid accounted for 14%, while banks took 10% and insurance companies 8%.
Mining profits
Investors were drawn to Adaro’s credit story and strong operating and financial profile. The company runs Indonesia’s single largest coal mine and its strong financial metrics are supported by high operating margins and a relatively low level of leverage.
Adaro has developed a strong capital structure and transformed itself from a high-to-low-levered entity since it last tapped the primary market for $400 million in December 2005, says David Tendian, the company’s chief financial officer. After its leveraged buyout (LBO) in June 2005, net debt to Ebitda was 5.3 times but had dropped to nearer 0.21 times by September 2009, excluding the $800 million bond issue.
Improvements in Adaro’s fundamentals have resulted in an enhancement of its ratings, with Adaro benefiting from two upgrades by Moody’s since January 2008. The company is one of the rare entities rated higher than its country’s own government, with its current Ba1/BB+ ratings from Moody’s and Fitch one notch higher than the Ba2-rated sovereign.
“It’s a rarity to receive two upgrades in such a short amount of time but rarer still that the second was in the middle of the worst financial crisis in modern economic times,” says Tendian.