Noble Group has appealed to new investors in both the syndicated loan and international bond markets this year, sometimes paying up to do so. It aims to continue a diversification play by moving into new markets in the future.
"Wed like to develop new areas of funding the Islamic funding market, in Malaysia for example, is a market which we are currently investigating," says Stephen Marzo, chief financial officer of the Singapore-listed but Hong Kong-based commodities company.
"We want to marry places we do business with accessing financing available in that market. For example, were able to access eight year funding from the development banks in markets like Brazil for a sugar cane crushing project in Brazil. This is more preferable to funding with three year money raised in Hong Kong."
The strategy of diversification has served Noble Group well in the recent past, given the uncertain nature of the economic environment and challenges that still remain in traditional financing markets.
"An important concern for us in terms of our future funding strategy is the health of the banking sector," says Marzo. "Theres a lot of uncertainty facing the banking sector and we need a healthy banking sector to provide liquidity to aid economic growth in our markets."
Noble spent much of the past 12 months working on expanding its lending relationships, with deals structured to pull in new lenders and diversify its funding sources.
The company picked July to issue a strategy-changing bond, with a tranche aimed at US investment grade bond funds, as well as its more usual investors emerging markets bond funds and a tranche designed to bring in demand from Asian retail investors. The deal pulled in 50 new investors to Noble Group in total.
It was split into a five year bullet and a 10 year non-call five issue. Sole bookrunner JPMorgan priced it at 330bp over Treasuries for the $500m five year piece, and 375bp over for the $250m 10 year.
The majority of the 10 year tranches book 58% was made up of Asian investors, while 31% and 11% went to the US and Europe, respectively. The 10 year piece also pulled in a larger proportion of retail investors 23% of the book compared with 5% on the five year piece. Three-quarters of the investors in the five year were from the US, with just 7% coming from Asia.
The deal not only brought in new investors, but allowed the company an extra degree of flexibility by giving it the ability to call at par after five years. Bankers estimated that the possibility of calling the deal early should cost the issuer around 20bp. The 10 year non-call five structure is more common among high yield borrowers in Asia, but is rare for investment grade issuers.
Biggest syndicate since 1991
The bond followed on from a record-breaking appearance in the loan market in October last year, as that sector began to recover after the fall-out from Lehman Brothers bankruptcy the year before.
The borrower launched a $1.8bn deal, which it increased to $2.4bn after putting together one of the biggest syndicates seen in the Asian loan market 61 lenders in total came into the deal, including the 11 bookrunners (at the time). It was the biggest by any borrower in Asia Pacific since 1991.
The $2.4bn was split into three revolving facilities: a $645.2m one year tranche, and a two year and a three year of $877.4m each, carrying margins of 135bp over Libor, 190bp and 240bp over, respectively.
Fit for purpose
"The deal came quite early in the loan markets recovery," said a banker who worked on the deal. "The borrower had to adopt a sensible strategy to raise that amount of money. It was priced well to make sure it attracted new lenders. We also wanted to make sure it was structured for that purpose for example existing banks could join on a pro-rata basis, but new ones could come in on just the 364 day piece."
The deal partially refinanced a three year loan signed in July 2007, which had a margin of 60bp.
Noble has had to pay a little more for this strategy, but is set to reap the benefits in the long run.
"Our primary focus was on creating new funding capacity," said Marzo. "We felt that in the environment of 2008 into 2009 we needed to attract new bankers and needed to incentivise new banks to join Noble so we left a bit on the table. I dont think we overpaid, but we were much more interested in creating credit capacity rather than trying to bargain down to the penny."
The company intends to build on those relationships in the future, particularly new relationships with Asian banks.
The loan was followed by another refinancing in August, again increased from its $1.2bn, to $1.55bn after heavy demand in syndication. That pushed maturities out to 2012.
Nobles next move in the loan market is likely to be to refinance its 364 day tranche from last years blow-out facility. It may also tap the bond market on an opportunistic basis before the year end.