Helio Towers provides rare African corporate risk

Telecoms mast

A debut bond from Helios Towers Nigeria showed that investors are willing to take on credit risk for the right name in the right sector.
The US$250m five-year non-call three deal was a rare example of a pure African corporate and from a sector that has barely seen any issuance. Indeed, the only other emerging market towers company to have issued in the international bond market is Indonesia's Tower Bersama, which sold a US$300million 4.625 percent 2018 note last year.
Privately-owned HTN - its shareholders include Helios Investment Partners and IFC - was also the first financial-sponsor owned deal from Africa and, more significantly, the first non-commodity corporate from the region.
"The deal broke new ground and showed the depth of appetite for corporates in Africa," said Alex von Sponeck, managing director, CEEMEA financing origination at Bank of America Merrill Lynch, which was sole lead manager.
"As soon as the announcement was made, Helios got an incredible reception from investors - one I've not seen for a long time for a Reg S transaction," he added.
Accounts in London, Lagos, Cape Town and Johannesburg all took the opportunity to learn more about the company, which leases space to telecoms operators at its tower sites for antennas and other wireless transmission equipment and provides maintenance, power and security services. Its main clients include Bharti Airtel, MTN and Etisalat. As such, HTN is not a telecommunications company but an infrastructure and logistics business.
HTN had total contracted revenues of USD$352m, as at December 31.
However, adjusted leverage is high - about 6x according to S&P - although there is a debt incurrence covenant of 5.5x through July 1 2015, and 4.5x afterwards.
Initial price thoughts of 8.50% area for a US$225-250m deal were put out even as investor meetings were continuing in South Africa.
One way investors considered price discovery was to look at how the Tower Bersama's bond trades over the Indonesian sovereign and apply the same differential over the Nigerian sovereign, adding a premium for the smaller size, the company's greater leverage and the fact that it was a debut deal.
Another way was to take oil and gas company Afren as a starting point and again add a premium for the size, the lower rating, and the debut aspect of HTN's trade. Either way, said bankers, leads to a mid-8s level.
With the book growing to about US$660m, pricing was cut to 8.375%, which is where the bond priced at the top end of the size target.


Some rival bankers thought the pricing was generous - and the bonds did

rally from their par reoffer price on the break, though they were trading at

99.50 in a weak market on Thursday, according to one banker away from the deal.

But they also recognised it was a an extremely rare kind of credit. "Fair play

it got done," said one, though he questioned just how liquid the bonds will be.




The vast majority of buyers were real money emerging markets accounts

picking up some desperately needed yield. Some high-yield investors also

participated.




Fund managers got 84%, banks and private banks 11% and insurers 5%. By

geography, UK investors dominated taking 71%, then Europe 16%, South Africa 8%,

Asia 4% and MENA 1%.




The deal came despite other rival tower companies seeking loans. "Despite

some competing loan product from other tower operators in Nigeria and Africa,

investors decided to come into a rated and tradable instrument for HTN,

vindicating the original advice to the issuer to go down the rated bond route,"

said Karim Movaghar, director, European syndicate at BAML.




Helios Towers Nigeria is rated B by both Fitch and Standard & Poor's.