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.