BEST HIGH-YIELD BOND
Adaro Indonesia US$800 million 7.625% bonds due 2019
Bookrunners: Credit Suisse; DBS; UBS
Asia’s high-yield bond market did not begin to see deals in any meaningful fashion until investors’ risk appetite had begun to settle. As a result, most deals only emerged in the latter half of the year. But when they came, they came in a flurry.
During late September and into October a welter of high-yield issues were priced. Many were from Chinese property companies, and a large number failed to perform. Amid all of these bonds, however, was one from Adaro Indonesia.
The Indonesian mining company is widely regarded as a virtual blue-chip company with the misfortune of operating in a junk-grade country. But it was not a straightforward sell.
For a start, Adaro wanted to issue 10-year bonds and no other Indonesian corporate had done so before. Secondly, Adaro planned to on-lend some of the funding to its mining services subsidiary, meaning that the debt would effectively be subordinated in the event of any credit problems.
While Adaro offers its unlisted unit a full guarantee, Asian investors seized on this fact to try and get more yield from the issue.
When Adaro began marketing the deal with Asian investors they began by saying that they wanted to see a yield of up to 9%. The company wanted tighter pricing and offered pricing guidance of 7.75% to 8.25%.
When demand from the region proved lacklustre, the company looked instead to emerging market investors in Europe and the US.
They were less worried about the structural subordination and were prepared to buy the bonds at a tighter range. It allowed the mining company to price the deal eventually with a 7.75% yield.
At that relatively tight yield the bookrunners still ended up registering US$5.75 billion in orders from 262 investors. It was an extremely impressive result, well inside where Adaro had priced its only previous international bond.