Indonesia Deal of the Year
Garuda Indonesia on the 27th May 2015 successfully priced a US$500 million five-year Sukuk offering. On the back of positive response from investors, Garuda launched the transaction at a price guidance of 6.25%. The orderbooks quickly built to US$1.9 billion allowing tightening of the guidance and final coupon at 5.95%. Speaking to Lim Say Cheong, the executive vice-president of Al Hilal Bank’s investment banking group, one of the lead managers and bookrunners for the deal, NABILAH ANNUAR provides a detailed account of the transaction.
Following a comprehensive global roadshow conducted in Abu Dhabi, Dubai, Singapore, Hong Kong, Zurich and London, the Sukuk adopted a Wakalah structure (with available travel kilometers as an underlying asset similar to Emirates Airlines’s and FlyDubai’s Sukuk) correlating to investors’ and scholars’ familiarity with the format.
Using an orphan-based SPV, Garuda Indonesia Global Sukuk as the issuer, Garuda’s offering was done without any government or financial institution guarantee, making it the first Asia Pacific national flag carrier to successfully issue a US dollar benchmark bond on a stand-alone basis since Qantas Airways’s US dollar bond offering in April 2006. As this is the first non-sovereign US dollar Sukuk out of Indonesia, issuance is believed to pave the way for other Indonesian state-owned enterprises and corporates to tap this market.
Apart from that, the deal is also: the first unrated US dollar Sukuk from an Asia Pacific issuer, the first US dollar Sukuk transaction from an Asia Pacific airline; the first US dollar Sukuk Wakalah from an Asia Pacific corporate, the first senior Sukuk by Indonesian Airlines and the first US dollar Sukuk by an Indonesian corporate in 2015.
Proceeds raised from the auction will be used for Garuda’s Shariah compliant general corporate purposes, including the repayment of certain existing Islamic financing arrangements. Commenting on the challenges faced in the process of the issuance, Lim said: “The unrated nature of the Sukuk was challenging for some investors; however, after hearing the credit story of the issuer and strong ownership, investors placed large orders in this transaction.” According to him, the deal was not rated as airline Sukuk in general have not been rated and this followed previous precedents.
Summary of terms & conditions |
|
Issuer |
Garuda Indonesia Global Sukuk |
Obligor |
Garuda Indonesia (Persero) |
Size of issue |
US$500 million |
Mode of issue |
Senior unsecured |
Purpose |
General funding |
Tenor |
Five years |
Issuance price and profit rate |
5.95% |
Payment |
Bullet |
Currency |
US dollar |
Maturity date |
3rd June 2020 |
Lead managers and bookrunners |
Al Hilal Bank, Dubai Islamic Bank, National Bank of Abu Dhabi, Australia and New Zealand Banking Group, Deutsche Bank, Emirates NBD, First Gulf Bank, Malayan Banking, Noor Bank, QInvest, Standard Chartered and Warba Bank |
Governing law |
Indonesian and English law |
Legal advisors |
Allen and Overy, Clifford Chance |
Listing |
Singapore Stock Exchange |
Underlying assets |
Available travel kilometers (ATKM) |
Structure |
|
Tradability |
Yes |
Investor breakdown |
Banks/agencies: 52% Private banks/corporates: 29% Fund managers: 19% |
Face value/minimum investment |
Minimum of US$200,000 |
By geography, 56% of the deal was allocated to the Middle East, followed by 32% to Asia and the remaining 12% to investors in Europe. By investor type, banks and agencies took the bulk of the offering at 52% while private banks and corporates as well as fund managers were allocated 29% and 19% respectively.
“[Garuda’s offering is a] further testament to the Sukuk market and the growing investor familiarity with airline Sukuk. Furthermore, post the government issuance, this is positive for other corporates from Indonesia [that are] considering an issuance,” elucidated Lim, highlighting the significance of Garuda’s deal to the international Islamic finance landscape.