Excelcom sells record high yield bond at enticing spread;
Euroweek. London: Jan 16, 2004. pg. 1
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Abstract (Document Summary)
PT Excelcomindo Pratama, the Indonesian mobile phone operator, broke records when
it launched its $350m debut bond to massive demand Thursday, but had to pay a
generous yield to do so. The 144A Reg S deal is rated B2/B+ and has a five year call
three structure. It was increased from initial plans of $250m, making it the largest high
yield deal from Indonesia and the biggest high yield telecom issue from Asia. The leads
also narrowed the price talk from 8.375% to 8.125%.
Full Text (947 words)
Copyright Euromoney Institutional Investor PLC Jan 16, 2004
PT Excelcomindo Pratama, the Indonesian mobile phone operator, broke records when
it launched its $350m debut bond to massive demand yesterday (Thursday), but had to
pay a generous yield to do so.
Excelcom's bond was a blow-out success. Bookrunners Credit Suisse First Boston,
Morgan Stanley and UBS built a massive $1.3bn order book as Excelcom benefited from
the surge of investor demand that has marked the beginning of this year.
The 144A Reg S deal is rated B2/B+ and has a five year call three structure. It was
increased from initial plans of $250m, making it the largest high yield deal from
Indonesia and the biggest high yield telecom issue from Asia.
The leads also narrowed the price talk from 8.375% to 8.125%. But some rival bankers
said the success was no great surprise considering the superb market conditions and a
yield they considered too generous when set against domestic comparisons.
Nevertheless, officials at Excelcom were pleased with the outcome.
"We met all of our immediate financial objectives with this bond and will now need to
reset our objectives to the next phase," said Navin Sonthalia, director of finance at
Excelcom. "I think the bond went fairly well and we are pleasantly surprised that we
gained such a positive investor response."
Excelcom had been planning to issue in dollars since mid-October, just after it priced a
Rph1.25bn domestic bond. The deal is being used to refinance a $292m loan secured
on Excelcom's assets.
"The pricing of the bond is quite competitive," said Sonthalia. "The Libor rate of the loan
was rising each year and we have managed to take this out at a relatively small cost
increase, while effectively making all of our creditors pari passu in importance, which
was especially important to us."
Excelcom is the third largest company in Indonesia's rapidly expanding mobile telephony
sector. Indonesia's 220m population is the fourth largest in the world, but only about 6%
have acquired mobile phones.
Sonthalia said: "Investors were interested because of a combination of a very positive
market sentiment, the company's strong fundamentals and the strong Indonesian
economy, combined with the strong potential cellular growth in Indonesia."
Excelcom is attempting to increase its subscriber base, although PT Mobile-8 Telecom,
a new mobile consortium, is also investing intensively to attack Excelcom's market
share.
Excelcom will invest the excess funding after paying back the loan in its infrastructure
network.
Fritz Simanjuntak, Excelcom's corporate secretary, said in reports this week that the
company expects a 40% increase in subscribers from 2.9m to 4.2m, and is planning to
spend $160m on infrastructure development this year to accommodate the growth.
Excelcom's 16% market share is well behind the 50% share of market leader PT
Telekomunikasi Seluler and the 30% of Indonesia Satellite Corp (Indosat).
The deal was priced at 99.495 with an 8% semi-annual coupon to give a yield of 8.125%
or 514.5bp over Treasuries. The call option in January 2007 is at 104.00.
But while demand was very strong, the yield looked generous against B2/B+ rated
Indosat's $300m 2010 call 2008 bond, which rival bankers said was trading at a yield of
7.27%, or 392bp over, on Wednesday.
The difference in spreads led to a great deal of criticism from rivals about the execution
of the deal before it was priced.
"At the marketed yield this deal is leaving a lot of money on the table," said a syndicate
official in Hong Kong. "The investor bid is very strong right now and given the area it is
being marketed at, there is no surprise that it is getting such a strong response."
Another said: "It is tricky to predict how the market will react to an Asian telecom name,
and UBS evidently took a defensive approach to the market. But the Ebit of the sector is
very strong and the bond is assured to go well."
One head of debt origination in Hong Kong pointed out that Excelcom lacks the strong
supporting shareholders that Indosat possesses and has a smaller market share. "A
yield premium is definitely required, but the question is, should it be this much?" the
official said.
Indosat is partly owned by Singapore's ST Telemedia, a state owned telecom company.
One syndicate official defended the pricing: "This was an Asian telecom company that is
not the biggest player in the market, coming at the beginning of the year. It was vital to
gain a strong momentum and ensure the bond was a success."
Of the 137 accounts participating, Asian investors bought 51%, Europeans 26% and US
buyers 23%. Asset managers took 57%, retail banks 21%, banks 16% and insurance
companies 6%.
"We were interested in getting a good investor diversity and were always fully prepared
to access the US investor base," said Sonthalia.
Excelcom's next major financial step is likely to be an IPO. "We have been discussing a
share offering in the fourth quarter of 2004 or the first quarter of 2005, depending on
market conditions," said Sonthalia.
The Republic of Indonesia will announce the winners of a beauty parade for a new
sovereign bond on Tuesday. Citigroup, Deutsche Bank and UBS are considered the
frontrunners in a wide field.
Indonesia conducted an international roadshow in November, when Citigroup and
Deutsche took officials around the US and Europe, while Citigroup and HSBC organised
a tour of Asia and Japan. The government then requested proposals just after
Christmas, disgruntling some bankers.
"This is a serious bond mandate," said one irate origination head in Hong Kong, "but if
they are just going to go with the original organisers of the roadshow then it makes a
mockery of the RFP process and means they ruined people's holidays for nothing."