Indonesian energy company PT Bumi Resources priced last Wednesday the country's first international securitization since the Asian Financial Crisis hit in 1997 (see ASR 6/13/04). Merrill Lynch acted as arranger and sole bookrunner on the $600 million deal, issued from the Indocoal Exports SPV and backed by future coal revenues generated by two Bumi subsidiaries, PT Kaltim Prima Coal and PT Arutmin.
After a week of roadshows in major U.S., European and Asian cities the seven-year notes - with a 3.1-year expected average life - priced at par with a 7.134% coupon, 350 basis points over three-year U.S. Treasurys. The transaction was rated BBB-' by Fitch Ratings.
Final pricing came in at the wide end of the 325 to 350 basis point indicative range. Even if Bumi had managed to achieve pricing at the tighter end, many bankers wondered why it bothered to choose the more time consuming and expensive ABS route.
Said one ABS banker in Hong Kong: "There are reports of banking fees being around $15 million. Throw in legal fees, and that pricing for triple-B minus paper starts to look pretty wide."
Some observers speculated that Bumi could have instead offered a high yield deal at a similar spread. Indeed, Indonesian telecom company PT Indosat managed to price a corporate unsecured transaction at a 326.8 basis point spread over Treasurys for its $250 million seven-year high yield offering, even though it was rated at the sovereign ceiling of B1/BB-'.
It is probably fair to say that Indosat, which is 42% owned by Singapore's ST Telemedia, enjoys a reputation as one of Indonesia's best-managed companies. Bumi, however, has not always received the best coverage in local or international media, due mainly to concerns over how the company came to take control of PT Kaltim from Rio Tinto and BP, as well as Arutmin from BHP Biliton. For example, just the day before pricing, a negative story surfaced on how production had been halted at one of the Arutmin mines in South Kalimantan due to a dispute with the Navy.
As to whether media coverage had any impact on pricing, that is difficult to ascertain. It may be just as plausible that investors demanded a premium for buying the first Indonesian ABS in eight years.
A source close to the situation reported the order book finished at $900 million, adding, "there were a number of high-quality investors who were price sensitive. In order for them to be included, the deal priced at the wider end (of price guidance). Spreads were also affected by Treasury yields dropping significantly (eight to nine basis points) on the day of trading."
Seventy-five accounts participated, the source added, including a fair representation of asset managers, insurance companies, private banks and commercial banks. U.S. investors made up 48% of the distribution, with 35% being sold in Asia and the remaining 17% bought by European investors.
Despite the criticism, the source said the deal's main objectives had been met. "It was the first ABS and investment grade deal from Indonesia since the financial crisis, and the largest non-sovereign bond in a long time. It also lowers the company's funding costs significantly to Libor plus 311 from Libor plus 400 for PT Kaltim and plus 500 for Arutmin."
The one undeniable positive is that Bumi and Merrill have opened up Indonesia for securitization again, and at least two more banks are currently planning marketing trips to Jakarta in the next month.
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