Uniflora Prima bond offering falters as Davomas’s Golden Ticket past spooks new investors

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In November 2009, ING Bank launched a deal code-named “Golden Ticket”, a wry reference to “Charlie and the Chocolate Factory”. The proposition was an exchange offer to restructure Indonesian cocoa processor Davomas Abadi’s USD 238m 11% bond with a 50% principal haircut, and while creditors got the joke, most didn’t laugh. To many, the deal -- closely followed by Debtwire -- felt more Sweeney Todd than Willy Wonka.

With Davomas under threat of liquidation due to a bankruptcy lawsuit by a pair of mysterious bond holders each holding USD 100,000 of the notes, Davomas’ creditors decided to take the 50% loss rather than risk fighting for recoveries in Indonesia’s dysfunctional courts. But many of the creditors – which included hedge funds such as Income Partners and Tudor Capital, as well as more mainstream asset managers like Denmark’s BankInvest – felt strong-armed, and the company’s proposal generated a great deal of ill will. In the months surrounding Davomas’s missed bond coupon in May 2009, many investors complained of a lack of transparency regarding the company’s finances and operations. Questions also lingered about how the bond proceeds had been spent, several bondholders told Debtwire.

Davomas did not respond to a request for comment.

So when a new and little-known Indonesian cocoa processor called Uniflora Prima proposed issuing USD 200m-USD 400m of bonds on 29 March and said it intended to use the proceeds as part of an effort to acquire Davomas, many investors asked how closely the two companies were linked. It didn’t help that ING was again the sole bookrunner for the deal as it was for the 2009 transaction, that Davomas’ former chief financial officer (CFO) was now running Uniflora; and that the owner of the proposed issuer also held a chunk of Davomas shares. To many, the bid to raise new money for a Davomas-related transaction seemed audacious. “Most people are incredulous,” one credit trader said.

When ING and Uniflora pitched the bond to investors, they emphasized the company’s 99.9% shareholder Rudiono Tantowijaya was an experienced cocoa trader with a vision to consolidate his new company with Davomas and clean up the latter’s legacy. During a 4 April conference call with investors, Rudiono insisted that while he had long been a 12% shareholder of Davomas, his role was purely that of passive investor and that Uniflora had “nothing to do with Davomas,” people on the call told Debtwire.

But many investors wanted to know more. ING and Uniflora provided only patchy biographical information on Tantowijaya in the offering circular and in road show meetings. When investors requested information about where he had previously worked, they were given the name of a company which, like Tantowijaya himself, had virtually no paper trail. When asked where he obtained the funds to inject at least USD 200m of his personal wealth into Uniflora, 60-year-old Tantowijaya answered that it came from his grandfather.

Still, the prospect of the deal getting done sent the price of Davomas’ bond soaring for a time -- to the 90s from the 70s prior to Uniflora’s announcement. That was largely because the Uniflora proceeds would be used in part to redeem Davomas’ bond at an 11% premium.

To investors who were unaware or unconcerned about Davomas’ history, the deal looked enticing given the 13.75% price guidance. Indonesia is the world’s third-largest cocoa bean producer after the Ivory Coast and Ghana, but most is exported in raw form rather than processed domestically. A new cocoa bean export tax would help domestic processors like Davomas and Uniflora, cocoa prices were on the rise, and combining two of Indonesia’s largest cocoa processors could generate economies of scale and improve bargaining power.

However, the bond deal faltered despite the promising industry story and viable business plan. First, the target size was lowered to USD 200m from USD 300m-USD 400m. Although a large portion of existing Davomas bond holders put in orders hoping to be taken out at a premium, the bond turned out to be a harder sell to new investors. Uniflora finally announced on 18 April that it was postponing the deal. The book size when the transaction was put on hold was rumored to be around USD 150m, two of the bondholders said.

ING and Uniflora declined to comment.

The 18 April announcement left the door open to another attempt, and Davomas announced on 20 April that Uniflora was seeking financing alternatives for the acquisition. Uniflora might be able to win over investors if it provides more transparency about its ownership, brings in outside management, or finds a reputable strategic investor, the bondholders said. But until that happens, markets are likely to remain cautious, they said.

Unlike Charlie, the holders of Davomas’ golden ticket didn’t end up owning the chocolate factory, despite owning debt secured by a majority of the company’s shares – instead, they got owned. Potential buyers of a Uniflora bond would need to be convinced they won’t end up the same way.

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