Indonesia Firm Is Said to Withdraw Junk Bond as Market Falls

Indonesian palm oil producer PT Sawit Sumbermas Sarana withdrew the sale of a dollar bond on Monday, after yields on Asian junk notes rose for a third consecutive day.

The issuance was halted due to a significantly weaker market backdrop, according to people familiar with the offering, who aren’t authorized to speak publicly and asked not to be identified. Sawit Sumbermas may reconsider the offering when appropriate, they said. Arie Raymond Pardosi, an investor relations officer at the company in Jakarta, declined to comment.

“Out of the four high-yield deals in Asia yesterday, the only one that was canceled was the Indonesian one,” said Raymond Chia, Singapore-based head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. “Onshore demand in China still provides key support for Chinese credits due to a home bias. But offshore investors are differentiating in a weak market amongst other factors.”

Sawit Sumbermas was offering an initial price guidance in the 7.25 percent area for five-year notes callable after three years, a person familiar with the matter said on Monday. Moody’s Investors Service and Fitch Ratings were expected to rate the note B1 and B+ respectively, four levels below investment grade.

Charles Macgregor, head of emerging markets at Lucror Analytics Pte. in Singapore, said in a note on Nov. 7 that Sawit Sumbermas was “surprisingly rated B1/B+ by Moody’s/Fitch,” and Lucror viewed this as “somewhat forward looking and optimistic.”

Reuters reported earlier that the deal had been pulled because of dampened risk appetite for the high-yield issuer.

Yield Jump

Three Asia dollar bonds did price Monday, including a $300 million 7.25% five-year junk note from China South City Holdings Ltd.

Yields on Asian junk bonds climbed 13 basis points over the past three trading days to 6.74 percent on Monday, the most since Aug. 16, according to JPMorgan Chase & Co. indexes. Last week, U.S. junk bond yields jumped 32 basis points, according to a Bloomberg Barclays index, and NRG Energy Inc. withdrew a planned offering “in response to broader market conditions.”

“It is good to see market pushing back on some names,” said Gordon Ip, chief investment officer, fixed income, at Value Partners Group Ltd. “I expect issues from Chinese issuers will be well supported by Chinese money. However, elsewhere in Asia, investors will likely be more selective and price sensitive.”

Indonesia’s Geo Energy Resources Ltd. was among three single-B rated companies that canceled or postponed debut dollar offerings one week in July amid rising yields on Asian junk bonds. The coal miner sold the bond in late September, citing few issues in the market.

November 14, 2017, 05:58:28 GMT
By Lianting Tu and Carrie Hong, with assistance from Annie Lee, Eko Listiyorini, Yudith Ho and Finbarr Flynn; Edited by Neha D'silva and Beth Thomas.