KNM Group’s failure to make principal and coupon payments on a Bt2.78bn (US$84.2m) 3% bond is set to test the guarantee structure used by the Credit Guarantee and Investment Facility to support Asian local currency issues.
It also sparked off concerns among investors looking at a new CGIF-wrapped bond being marketed by Thai logistics company JWD InfoLogistics on Tuesday.
Malaysian energy-related services and equipment provider KNM missed payments on the maturity date of November 18 but has a grace period to make good its obligations. It has up to 14 days after the maturity date, that is until December 2, to pay the principal sum and up to 21 days, that is until December 9, to pay the coupon.
Although the size of the bond is small, this is thought to be the first time that an issuer has missed either interest or principal obligations on a CGIF-wrapped bond.
CGIF, a facility created by the Asian Development Bank with the ASEAN countries plus China, Japan and Korea, said in 2019 that none of the bonds it had guaranteed had defaulted as of end-March 2019, and that no CGIF guarantee had been called upon. CGIF declined to comment in response to queries from IFR.
Under its unconditional and irrevocable guarantee which covers non-payment of 100% of the principal and interest payments, CGIF is expected to make good on its obligations in the KNM bond, said Tris.
The Thai rating agency said the guarantee agreement allows the bondholders’ representative to demand payment of the guaranteed amounts from CGIF 20 business days after the non-payment event, which will occur after the grace periods lapse.
KNM said it is in advanced discussions with financial institutions to secure credit facilities to redeem the bonds but approvals from financial institutions were expected to be given only after the bond’s maturity date.
At the same time, KNM is exploring asset and share sales in its Thai subsidiary Impress Ethanol which has been badly hit by the Covid-19 pandemic.
KNM announced on November 22 that it was undertaking a private placement of up to 334.13m ordinary shares, representing 10% of its share capital, to raise some M$53.5m (US$12.7m). The placement is scheduled to be complete by end-December. The funds will help pare debt and meet working capital needs but will not be sufficient to redeem the baht-denominated bond.
KNM said it was in close talks with CGIF on, among other things, its refinancing plans and plans to reimburse the guarantor on the amount to be paid to bondholders.
News of KNM’s non-payment rattled some investors before books for JWD InfoLogistics opened on November 23. Joint lead managers Kasikornbank and Kiatnakin Phatra Securities however managed to reassure investors that CGIF would honour full payment on KNM’s bond, albeit over a period of time. All the investors that had indicated preliminary interest in JWD's deal eventually signed up, with the small deal size of Bt1.2bn playing in JWD InfoLogistics' favour.
The nine-year notes were marketed at initial guidance of 2.94%–3.24%, and priced at 3.24%.
CGIF was set up in November 2010 to improve South-East Asian companies’ access to the local capital bond markets and widen cross-border bond issuance in the region.
Some issuers that tapped CGIF’s wrap have since graduated to funding on a standalone basis after establishing their credentials. One such case is Siamgas and Petrochemicals, which sold Bt2bn five-year 3.03% CGIF-wrapped bonds in 2018 but started selling bonds from January 2019 without any guarantees.
To date, CGIF has guaranteed a total of 51 bond transactions with a combined volume of US$2.559bn. Of these, nine bonds have been fully redeemed.
Refiled story: removes date in 5th paragraph