INDONESIA: Tire company sells $500 million in bonds

The company announced in a brief prospectus published in Bisnis Indonesia that it priced the five-year notes to yield at 7.75 percent, lower than its previous indicative price at 10 percent. The company had appointed Credit Suisse, Deutsche Bank and HSBC to help with the sale.

The three banks also bought the bonds. The prospectus did not state the proportion purchased by each bank.

Gajah Tunggal intends to use the proceeds to repay its $412.49 million in debts ahead of its June 2014 due date, enabling the company to reduce its interest payments. The remainder will be used for the company's expansion plan.

The tire maker issued five-year notes worth around $435 million in 2009 with a coupon rate that will increase over the years. The company would be charged at 10.25 percent if the debt is repaid after 21 July this year. Prior to that date the coupon rate will be at 8 percent.

Responding to the news, credit ratings agency Standard & Poor's raised its long-term corporate credit rating on Gajah Tunggal to B+ from B with a stable outlook. It also raised its Asean regional scale rating on the company to "axBB” from "axBB-.”

"The upgrade reflects Gajah Tunggal's refinancing of its 2009 restructured bonds with $500 million in senior secured notes due 2018,” the agency said in a note. "We believe the
company's debt maturity structure has substantially improved after this refinancing.”

"We expect Gajah Tunggal's financial risk profile to become more sustainable over the next two years as its revenues grow moderately,” said Standard & Poor's credit analyst Xavier Jean. "We project 7 percent-10 percent revenue growth for the company in 2013, with higher sales volumes and stable to marginally weaker average selling prices.”

Gajah Tunggal distributes Michelin passenger-car and light-truck tires, including the BFGoodrich brand, in Indonesia. Gajah Tunggal's revenue rose 7.6 percent, to Rp 9.4 trillion ($972 million), in the first nine months last year.

Companies like Gajah Tunggal are reaping the benefits of increasing car sales in
Indonesia. The country's car sales hit a record high of 1.1 million in 2012, according to data from the Indonesia Automotive Industry Association (Gaikindo).

Source: Daily "The Jakarta Globe", Jakarta; 8 Feb 2013(Syed Rashid Ali, Karachi, Pakistan)