Indofood bond issue may be welcome

Indofood bond issue may be welcome

Netty Ismail, Dow Jones, Singapore

Indofood Sukses Makmur's US$200 million bond issue, which will
be priced as early as Tuesday, will likely be warmly received
despite a recent drop in international investors' appetite,
observers said.

Sentiment turned dour as a recent selloff on Wall Street
stoked concerns about the sustainability of a global economic
recovery, observers said.

The controversy surrounding the Philippines' sovereign bond
issue last week, and the recent slump in outstanding Philippine
paper, have also made investors wary.

Still, with fund managers sitting on piles of cash and the
Indonesian food production giant's strong domestic market
position, observers expect Indofood's credit to lure good
interest.

"Within Indonesia, this is a good defensive bond," said a
source close to the deal.

Indofood will announce the official price guidance of its $200
million five-year notes during London trading hours Monday,
sources familiar with the deal told Dow Jones Newswires.

The issue, which is lead managed by Credit Suisse First
Boston, will be priced either Tuesday or Wednesday, they added.

The issue will likely be priced at a yield of 10.875 percent-
11 percent, or at least 650 basis points over U.S. Treasurys,
said a source close to the deal.

But some investors believe the deal should be priced higher to
lure investors, concerned about the company's financial profile.

"It should be more than 11 perent," said a fund manager based
in Hong Kong.

One of the key risks to the credit centers around the
instability of the Indonesian currency, the rupiah, combined with
the company's significant operational and balance sheet foreign
currency exposures, UBS Warburg noted in a report.

The company's refinancing risks are also a concern, although
this should be substantially reduced once the planned bond issue
is completed.

The issuer has been addressing investors' concerns over its
foreign exchange risk over the past week at its roadshows in
Singapore, Hong Kong and Europe. The roadshow will end in Jakarta
Tuesday.

"The major credit issue has been the FX risk, but the
management has done a relatively decent job of convincing
investors of its FX policy," said the source close to the deal.
"They've seen a pretty good response."

UBS Warburg said it expects Indofood to get a better reception
from the market than Indonesian oil and gas company PT Medco
Energi International, "due to what we see as its better name
recognition with both domestic and international investors,
greater cash flow certainty and cleaner credit history."

Medco had to downsize its five-year bond offer to $100 million
earlier this year in order to place 60 percent of it offshore.
The issue by Medco, which is rated one notch higher than
Indofood, was priced at 10.5 percent.

Indofood is the world's biggest maker of instant noodles. Hong
Kong-listed First Pacific Co., controlled by Indonesia's Salim
Group, has a 48 percent stake in Indofood.