Gajah Tunggal’s US$500m five-year non-call three bonds came only four years after it restructured its offshore debt, completing a successful turnaround story and marking its return to the international capital markets.
The deal was also the integrated tyre maker’s first bond offering in the 144A/Reg S format.
The yield of 7.95% reduced Gajah Tunggal’s funding costs and beat its own expectations after shareholders had approved a maximum annual interest rate of 10%.
More importantly for Gajah Tunggal, January’s new issue came alongside a concurrent tender offer, which allowed it to redeem US$412m of outstanding due 2014s before a coupon step-up to 10.25% in July.
“Our maiden global 144A bond offering allowed Gajah Tunggal to secure relatively low financing cost for the mid-term and also helped optimise our debt capital structure,” said Christopher Chan, the company’s president director and CEO.
“In addition, the bond offering also diversified our investor base, providing us with a strong and diverse funding source to support our envisioned sustainable growth going forward.”
The 2014s were issued in July 2009, when the company restructured a 10.25% five-year bond due 2010. Credit Suisse handled the par-for-par exchange, which reduced the company’s coupon payments through a new US$435.5m five-year bond with coupons initially set at 5%.
Calling those restructured bonds also gave Gajah Tunggal more flexibility with the removal of some restrictive covenants. The tender offer also came with a consent solicitation to reduce the notice period from 30 days to just one day, thereby speeding up the process and minimising any accrued interest.
Moody’s and S&P approved the move and positive rating actions from both agencies helped the marketing process. Sure enough, after the whole exercise was completed, Moody’s upgraded the company to B2 from B3 and S&P lifted it to B+ from B.
It was a win-win deal for both issuer and investors, trading up as far as 107.50 in early May for a yield of 5.87%.
Total orders reached US$3.75bn. In terms of geographical distribution, 37% of the bonds went to US investors, 41% to Asian accounts and 22% went to Europe. In terms of investors, fund managers bought 80% of the bonds, private banks bought 11%, insurers bought 6% and others bought 3%.
Credit Suisse, Deutsche Bank and HSBC were joint dealer managers on the tender offer and new issue.
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