May 15, 2018 / 8:46 AM / 10 months ago

Nagacorp opens new frontier for Asian bonds

* Phnom Penh casino operator becomes first Cambodian issuer of offshore bonds

By Daniel Stanton

SINGAPORE, May 15 (IFR) - Nagacorp, which owns and operates the only integrated casino and hotel resort in Phnom Penh, has become the first Cambodian issuer of offshore bonds, overcoming a weak Asian high-yield market.

The company priced US$300m three-year non-call two bonds at 99.362 with a coupon of 9.375% to yield 9.625%, via joint global coordinators and bookrunners Credit Suisse and Morgan Stanley. Final pricing was inside initial guidance of 9.75% area.

The bonds are expected to be rated B1/B (Moody’s/S&P), in line with the Hong Kong-listed issuer. Moody’s rating is one notch above the Cambodian sovereign, which has never issued offshore bonds. S&P and Fitch do not currently rate the sovereign.

The jurisdiction was a key challenge for bookrunners and investors in forming an opinion on fair value. Investors were heard to ask for anywhere from 8% to more than 10%.

Mongolia (B3/B–/B–) and Pakistan (B3/B/B) had three-year bonds quoted at 6.1% and 6.3%, respectively, according to Tradeweb, pointing to a Cambodian sovereign yield in that area.

Nomura’s sales and trading desk put fair value in the region of 9.3%–9.4% after adding on a spread for the company’s own credit risk, as well as the political and regulatory frameworks in Cambodia. It warned of potential risks around the Cambodian general election in July.

A market source argued that Nagacorp would be viewed as a strong Double B credit if it was based in another jurisdiction, but the rating was constrained by the strength of the sovereign.

Nagacorp was an appealing credit, based on its own strengths, as it had not even taken bank loans before coming to the offshore bond market, and generated US$320m of Ebitda in 2017.

Roadshows were held in Asia, London, New York and Boston. The company engaged with US investors familiar with high-yield issuers from the casino industry and keen to pick up a rare Asian gaming credit. Some investors who were already familiar with the stock were said to have looked at the bonds, too.

Asian investors took 63% of the 144A/Reg S notes, with US investors booking 22% and EMEA accounts 15%. By investor type, asset managers and fund managers bought 90%, banks and securities firms 9%, and private banks 1%.

“You would think a debut high-yield issue would be hard to do in this market, but you can view this as a play on Chinese consumers and it’s barely levered,” said a banker away from the deal. Cambodian casinos are targeted at tourists, as locals face restrictions.

“The stock is doing okay and it has sizeable Ebitda,” added the banker. “At this yield, if investors have cash to deploy, it doesn’t look like it would push much wider.”

In fact, the bonds were bid 1.5 points higher in trading on Tuesday, bucking the recent trend in Asian high yield for new issues to trade down. Proceeds from the issue will be used to grow Nagacorp’s VIP gaming business and refurbish hotel rooms. Nagacorp’s concession runs until 2065 and it has a monopoly in the Phnom Penh area until the end of 2035. (Reporting by Daniel Stanton; Editing by Vincent Baby)

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