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Published on February 25, 2008

The hugely successful US$170-million (Bt5.5 billion) convertible-bond issue by Thoresen Thai Agencies (TTA) last September was tailor-made for it by Macquarie.

It was a brave decision for TTA, an integrated freight carrier and the fourth-largest transportation firm on the Stock Exchange of Thailand, to make amid the turbulence in the global economy following the sub-prime mortgage crisis in the middle of the year. Yet the issue was oversubscribed three times over.

It was the largest convertible-bond issuance in Thailand since the Asian financial crisis in 1997, and only the second international convertible bond by a Thai company since 2002.

What was the key to this success in a difficult market, and how was the bond structured?

Though it was a narrow market at that time, TTA managing director ML Chanchutha Chandratat felt that sooner or later the company would need funds for its fleet renewal plan and refinancing of its $150-million short-term debt.

"We had planned the bond issue for eight months. It had to be sooner rather than later," he said.

Chanchutha had approached three brokerages to serve as financial advisers to the bond issue, which was approved by TTA's board early last year, and finally selected Macquarie, led by Johnson Tan, managing director for Southeast Asia and head of Thailand for Australia-based Macquarie Capital Advisers.

Tan said Macquarie acted as joint-venture global coordinator, joint lead manager, joint book runner, sole settlement agent and sole stabilisation manager for the TTA offering.

"The bond issuance structured by Macquarie is very innovative and it suited TTA's business plan," said Chanchutha.

He said TTA planned to gradually replace 24 vessels aged 25 years or more with new vessels over the next four years, and to refinance its existing debt.

"We were looking for any product with flexibility after analysing numerous scenarios, including both capital increase and non-capital increase options," said Chanchutha.

Eventually, the flexible product TTA decided on was a convertible bonds with staggered maturity. One-third of the bonds will mature in the third, fourth and fifth years. This staggered maturity enables TTA to spread its refinancing over a three-year period and reduces the possibility of a funding squeeze in any one year arising from a possible downturn in the shipping cycle.

"The shipping business is cyclical, so we should not get into trouble when there is a downturn," Chanchutha said.

According to the conditions of the bond issue, the company can choose whether to pay the principal to the bondholders in cash or TTA shares, he said.

When TTA shares are up, the company can pay the principal in cash so that it will not affect the company's cash flow. On the other hand, if TTA shares are down, the company can pay the principal in terms of its shares so that there will be no dilution effect on the share price.

"Not only are TTA shareholders happy but also TTA bondholders. It's a win-win situation," said Tan of the bond features designed by his team.

The bonds offer a year-to-maturity yield of 5.5 per cent annually with a fixed rate of 2.5 per cent per annum. The interest will be paid every six months until maturity.

Despite the US Federal Reserve's decision to cut its rate cut by 50 basis points in September, Macquarie was able to raise the full $170 million approved by TTA shareholders.

Tan attributed the success of the issue to the strength of Macquarie's global distribution platform, as well as a carefully crafted and timed non-deal road show that helped generate demand well in excess of the issue size.

He added that the transaction was priced overnight to capture both the narrow market window created by the US Fed rate cut and TTA's high share price on the day.

"The bond issue by TTA is considered the hardest deal for Macquarie," said Tan. "But we had good conditions for this issuance. Moreover, TTA is a customer that is easy to work with."

Tan admitted that not every company is able to issue bonds as TTA did, saying it depended on the companies' needs.

The Macquarie Group is one of the largest international providers of financial services, providing specialist investment, advisory, trading and financial services in select markets around the world. Macquarie has been active in Asia for more than a decade, establishing its first office in Hong Kong in 1994.

The group has more than 1,800 professionals in 11 markets in Asia. This team is complemented by the resources of Macquarie's global network of about 12,000 people in 25 countries.

Sasithorn Ongdee

The Nation