Banglalink was able to issue Bangladesh's first ever international bond under the stewardship of Citi, thanks to its great growth potential and the backing of foreign ownership.

Citi has been among the top four bookrunners on global debt issuance so far this year. A small but colourful contributor to its tally, adding another dimension to 'global', was its sole bookrunning mandate on the first ever international bond out of Bangladesh.

Unusually, the debut was staged not by the sovereign but by a corporate issuer. In a number of otherwise daunting frontier markets, wireless telecoms has the power to seize investors’ attention and this is no less true in Bangladesh. It was this very focused appeal that allowed Banglalink to issue $300m of senior unsecured, five-year non-call three notes.

While the sovereign has no outstanding international bonds, it has foreign currency and local currency ratings of Ba3 from Moody’s and BB- long-term and B short-term, respectively, from Standard & Poor's, each with a stable outlook. That allows investors to compare Bangladesh with other frontier and emerging markets. It is rated higher than Sri Lanka and Pakistan, for example, and at the same level as Vietnam.

The country's economy has grown at an average rate of 6% for the past 20 years, and at 6.5% for the last three of them. Telecoms is one of the fastest growing sectors in the country and the largest driver of foreign direct investment. There are six mobile operators, of which Banglalink is the second largest, with a 25% market share.

Huge potential

With a population of 158 million and a population density of 913 per square kilometre, Bangladesh is one of the most densely populated countries in the world. “For telecoms operators invested in the region, that means more bang for their buck,” says Shailesh Venkatraman, the Singapore-based Citi executive responsible for Bangladeshi debt capital markets (DCM) coverage.

“The potential for mobile, data and 3G growth here is quite immense,” he adds. “Nearly 51% of the population is under 25. And while they talk of a mobile penetration rate of 72%, that overstates the reality because of the multi-SIM phenomenon.” While the mobile sector has doubled in the past five years, the Bangladeshi telecoms industry still has one of the lowest ARPU (average revenue per user) levels in the region.

Banglalink is effectively 100%-owned by Global Telecom Holding (GTH) of Egypt, which is 51.9%-owned in turn by Russia’s VimpelCom. Citi has worked with VimpelCom in the past, and was involved with its most recent debt offerings in US dollars. The fact that it is also one of the dominant foreign banking presences in Bangladesh could only help in the tender for the Banglalink mandate.

The bond issue was mooted largely as a refinancing exercise, to repay a bridge loan and secured debt taken on to fund capital expenditure and 2G and 3G licence commitments. “[It was] moving from a mix of secured and unsecured debt to a completely unsecured capital structure, giving it more flexibility going forward,” Mr Venkatraman explains.

The deal was some time in the making, requiring a number of different regulatory approvals. Citi worked closely with key regulators to help set up a framework for Bangladeshi corporate bond issuance into the international markets. The bank also acted as ratings advisor to Banglalink, which obtained inaugural ratings of B1 and B+ from Moody’s and S&P, respectively.

The company has historically been supported by shareholder loans, and a key feature of the structure was that these were subordinated to achieve equity treatment from the ratings agencies. “The shareholders were open to having their loans subordinated, which sent a strong signal to the market,” says Mr Venkataram.

Given that VimpelCom is a global telecoms operator with a presence in 17 countries, investors were also comforted by its support for Banglalink in various other ways – with financial, operations and technical back-up, as well as a helpful global procurement policy.

The transaction had to navigate the political turmoil that has been afflicting Bangladesh, particularly in the run-up to this year’s elections, which caused some delays. Nonetheless, a comprehensive roadshow finally got underway in early April, with the aim of pricing just before much of the Western world broke for Easter holidays on April 18.

Mixed newsflow

The roadshow took in Hong Kong, Singapore, London, New York, Boston and the US west coast, with group lunches in Asia and a host of investor calls. The transaction had been flagged up well in advance, to give investors time to get credit lines in place. During presentations, there were questions about the Bangladeshi macro economy and the regulatory framework, and much interest in Banglalink’s place in the VimpelCom group structure and its future capital expenditure needs.

Before the deal could price, however, the company asked that everything be put on hold. It transpired that VimpelCom and GTH had signed a share purchase agreement for the sale of 51% of their Algerian business, Orascom Telecom Algérie (otherwise known as Djezzy), to the Algerian National Investment Fund. A separate agreement allowed the release of dividends otherwise trapped in Algeria. “With a total of $4bn flowing back into the group, it was important that investors had time to review this development,” says Duncan Phillips, Citi’s Hong Kong-based head of Asia-Pacific debt syndicate.

Other news was less helpful. Tensions between Russia and Ukraine had been mounting, and VimpelCom’s own bonds were seesawing during the marketing period. S&P downgraded Russia on the day the Banglalink deal was priced.

Valuation was not straightforward. Since there were no Bangladeshi comparables, the bankers considered two other approaches. The first was to estimate where the Bangladesh sovereign would issue if it came to market and work back from there.

“Sri Lanka was a good proxy and had an outstanding five-year bond trading at about 5.25%,” says Mr Phillips. “To this we added some typical building blocks – a corporate to sovereign spread of 200 basis points, an inaugural jurisdiction premium and a new issue concession – which took us to the high eights.”

Another possible starting point was the yield on the VimpelCom 2019 bond. Adjustments for the difference in ratings plus inaugural and new issue premia suggested a yield of 8.5% to 9%. So the deal went out with initial price thoughts at 9% area.

Robust orders

In spite of the marketing delay, many investors were unfazed by the situation developing in Russia and Ukraine. “One of the things that impressed me on this deal was the robustness of the order book,” says Mr Phillips. “There were certain key investors who were serious about the offering from the day it was announced.”

The re-offer yield was tightened to 8.875% area on an 8.625% coupon. The order book was three times covered which, given the Asian propensity for order inflation, was not immense, so geopolitical uncertainties had taken their toll. But demand was reasonably diversified. Asia took 64% of the transaction, with 29% going to Europe and 7% to the US. Funds accounted for 72%, banks 11% and private banks 17%.

“We were very pleased with the eventual distribution of the bonds,” says Mr Phillips. “Eight out of the top 10 accounts were institutional real-money investors, who saw this as an important diversification trade. With the bonds locked away, it traded very well in the secondary market.”

Amit Sheopuri, Citi’s Hong Kong-based head of Asia DCM, hopes that the deal will usher in more of the same from Bangladesh. He points out that three of the country's five key telecoms operators have substantial foreign ownership. “Most of them will review their financial plans, and this bond paves the way for future issuance in this sector,” Mr Sheopuri maintains.

The establishment of a benchmark will also help the Bangladeshi government to finalise its preparations to come to the international markets, he believes. “As Bangladesh continues with its plans at the sovereign level, this is a step in the right direction. It’s a big plus for the country, for the industrial sector and other private companies, and I hope to see more corporate issuance out of Bangladesh.”


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