Gajah Tunggal - Anonymous bondholder warned that GJTL breached covenants - Deutsche Bank

In a letter dated 1st July 2011, an anonymous bondholder noted that GJTL have breached their bond covenants by paying dividends to equity holders (clause 4.1(a)(i)). On the 30th June 2011, GJTL paid dividends of Rp.12/share out of FY10 profits (total dividends paid: Rp42bn or US$4.9m); 0.4% dividend yield and 5% payout ratio.

An exception to the above; (clause 4.1 (b)(iv))
1. After the interest step up date (which will occur in July-2011), dividend payment is allowed but shall not exceed US$20m); or
2. In the event the company is required by the Indonesian Law to pay dividends to its public shareholders prior to the interest step up date, dividend payment is allowed but shall not exceed US$20m.

The anonymous bondholder is currently in the midst of forming a group of bondholders holding 25% of the bonds to call an event of default and accelerate the payments due.

The company should provide more clarity on this issue by the end of today. As it stands, the validity of the arguement put forth in the letter remains to be seen. Indeed, GJTL also paid dividends to equity holders mid-2010, without objections/ breach of covenant issues.

From an earnings and financial health stand point, we believe the company remains capable in servicing its debt notwithstanding the dividend payments;
- Bonds outstanding FY11F: c. US$425m
- EBITDA FY11F: c. US$180m
- Interest expense FY11F: c.US$40m
- Net debt FY11F: US$314m
- Net debt/Equity FY11F: 0.6x