Nagacorp’s US$300m debut bond introduced the first Cambodian issuer to the international markets and was arguably one of the most difficult deals executed in Asia in 2018.
Nagacorp, which operates the only integrated casino and hotel resort in Phnom Penh, had to negotiate a rocky period for emerging markets in May and set a price for Cambodian risk, given that even the sovereign had yet to set an offshore benchmark.
The deal, however, priced inside guidance and traded well, giving the company a valuable funding platform for future projects and the poor South-East Asian nation a first foothold in the international markets.
Risk appetite was off the table with US Treasury yields spiking: two Chinese issuers were forced to pull investment-grade US dollar bond offerings in the two days after Nagacorp priced, as the 10-year US Treasury yield hit its highest level since July 2011. Closer to home, there was also political risk from an election due in July.
Given investors’ concerns over the country’s political and business environment, Nagacorp emphasised that the proceeds would be used to grow revenue, by developing the VIP business and refurbishing hotel rooms.
Credit ratings of B1/B (Moody’s/S&P) helped position the company above the sovereign, which has a B2 from Moody’s and is not rated by S&P or Fitch.
Leads Credit Suisse and Morgan Stanley arranged a visit to the casino and hotel complex to give potential investors a closer look at the operations, in addition to an extensive management roadshow.
Nagacorp’s fundamentals were a strong selling point, as it had not taken bank loans before coming to the offshore bond market, and generated US$320m of Ebitda in 2017, helped by a steady flow of tourists, especially from China.
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.
Nagacorp announced initial guidance at 9.75% area, based on pricing comparisons from around the region, but after receiving robust demand especially from the US, tightened to a final yield of 9.625%.
Asian investors took 63% of the 144A/Reg S notes, with US investors booking 22% and EMEA 15%. By investor type, asset managers and fund managers bought 90%, banks and securities firms 9%, and private banks 1%.
The bonds were bid 1.5 points higher in trading the next day, bucking the trend at the time in Asian high yield for new issues to trade down. The bonds had not fallen below par since issue and were spotted at around a cash price bid of 103 by mid-November.