Cover Story 2 Offshore Processing Entering the fourth quarter of 2012, Australian corporates ramped up their offshore issuance, providing half the sector’s year-to-date volume in a four-week period. KangaNews talks to issuers and intermediaries to find out what has been supporting these transactions, and why international markets continue to attract Australian credits.

By Sonia Han

hile a broader range of international Court’s approval to the European Stability Mechanism and the issuers have been coming to the announcement of outright monetary transactions, the Federal Kangaroo market to launch inaugural Reserve launched a third round of quantitative easing (QE3) transactions (see feature on p18), on September 13 – a new US$40 billion per month, open- Australian non-financial corporates ended mortgage-backed securities purchasing programme. continue to be well-received in global Credit research teams from banks have since reported dropping capital markets, achieving long tenors interest rates, and stronger credit and equity markets, on the Wand decent issue size over well over-subscribed order books. back of the removal by QE3 of some of the downside risk of Recently, APA Group (APA) issued its debut 144A notes though a sharper US slowing. its APT Pipelines entity, SPI Assets (SPIAA) printed the “Since the QE3 announcement, there has been a significant first Australian Reg S-only benchmark for a number of years, and boost to sentiment and confidence that led to increases in (Origin) issued its inaugural euro-denominated issuance across all markets, compared with the corresponding senior bonds. period last year,” David Gillespie, general manager, finance From late September to mid-October, seven Australian strategy and treasury at SPIAA in Melbourne, tells KangaNews. investment-grade, non-financial institution corporates from According to Brad Peel, -based vice president, different sectors successfully raised A$16.7 billion (US$17.3 capital markets and treasury solutions at Deutsche Bank, billion) equivalent, counting for just over half of the year to there is a strong bid for corporate credit, regardless of issuer date public market supply (see table on facing page). At the geography, in the major currencies around the globe. “Investors same time, Australasian high-yield issuers have also returned to see credit as a lower-risk option that delivers some yield. the US market (see box on p32). Added to this underlying demand, investors are interested in The recent deal flow comes in a global atmosphere of the diversification story and the strength of the Australian improving risk appetite. Following the German Constitutional economy compared to its developed peers,” he says.

“Corporates are able to issue bonds offshore at levels cheaper than banks fund themselves in the bond markets, with tenors well beyond the five years typically available in the bank debt market. This is supporting the ongoing trend towards diversification of corporate funding sources.”

Sylvia Preda B arclays

30|kanganews november 2012 AUSTRALIAN INVESTMENT-GRADE CORPORATE ISSUERS’ BENCHMARK FOREIGN CURRENCY DEALS, 2012

Pricing Issuer Rating (S&P/ Currency Volume AUD Maturity Date Spread Date Moody’s/Fitch) (M) Equivalent (M) 24 Jan 12 SPI Electricity & Gas Australia A-/A1/A CHF 250 256.8 Feb 2017 GS+133 28 Feb 12 Finance Company A-/Baa1/A- CAD 250 236.5 Mar 2019 GOC+170 7 Mar 12 BBB/Baa2 CHF 150 154.4 Apr 2018 GS+163 14 Mar 12 Corporation A /A 2 /A EUR 1,000 1,245.9 Sep 2022 DBR+161 15 Mar 12 BBB/Baa2 USD 500 526.3 Mar 2022 UST+380 23 May 12 BHP Billiton Finance A+/A1/A+ EUR 1,250 1,611.0 Nov 2018 DBR+147.1 23 May 12 BHP Billiton Finance A+/A1/A+ EUR 750 966.6 May 2024 DBR+164.3 21 Jun 12 APT Pipelines BBB/Baa2 CAD 300 290.3 Jul 2019 GOC+276.3 24 Jul 12 A-/Baa1/BBB+ EUR 650 766.6 Aug 2022 DBR + 161.2 19 Sep 12 BHP Billiton Finance A+/A1/A+ GBP 750 785.6 Sep 2024 UKT + 120 19 Sep 12 BHP Billiton Finance A+/A1/A+ GBP 1,000 1,047.4 Sep 2042 UKT + 115 19 Sep 12 BHP Billiton Finance A+/A1/A+ EUR 1,250 1,309.3 Sep 2020 DBR + 108 19 Sep 12 BHP Billiton Finance A+/A1/A+ EUR 750 785.6 Sep 2027 DBR + 176.8 24 Sep 12 Newcrest Finance BBB+/Baa2 USD 750 781.4 Oct 2022 UST + 255 24 Sep 12 Newcrest Finance BBB+/Baa2 USD 250 260.5 Nov 2041 UST + 280 24 Sep 12 Westfield Group A 2 /A- USD 500 521.3 May 2022 UST+180 28 Sep 12 SPI Australia Assets A-/A3 USD 500 519.1 Apr 2023 UST+170 2 Oct 12 Origin Energy BBB+/Baa1 EUR 500 513.2 Oct 2019 MS+160 4 Oct 12 APT Pipelines (APA Group) BBB/Baa2 USD 750 768.4 Oct 2022 UST+237.5 17 Oct 12 Holdings BBB/Baa2/BBB USD 600 623.2 Mar 2023 UST+220 Source: KangaNews October 31 2012

“Australian issuers are certainly benefiting from investor Market of issue flight-to-quality and the popular theme of diversification from n this context the appeal of the 144A market to some Europe,” Sylvia Preda, head of debt capital markets at Barclays Australian corporates, most notably mining companies in Sydney, confirms. Other lead managers suggest defensive Iwith predominantly USD-denominated revenues, is clear. sectors, such as utilities and non-cyclical industrials and retailers, Ben McCormick, Melbourne-based treasurer at Newcrest, are likely to be most favoured. tells KangaNews: “We saw that US investors were seeking Kate Stewart, managing director and head of debt capital diversification and that many of our current bondholders markets at BNP Paribas in Sydney, is not surprised by the wanted to add to their holdings of Newcrest paper. US moving trend of underlying supply. “Given how strong the Treasury rates were also low and offered the opportunity to market is, issuers that are considering a refinancing task in the price at tighter coupons than our inaugural deal last year. This next six months, with the correct marketing and execution gave us confidence to approach the market – despite the fact strategy, will be able to take advantage of the current strong that few Australian issuers had done so in 2012 up to the point market and print at tight levels,” she says. we priced.” Peel believes current conditions work in favour for However, the very long tenor available in offshore markets investment-grade issuers. “The vast majority of them should be including 144A may be something of a moot point for able to meet their size objectives out to tenors of 10-12 years in Australian issuers who need to swap deal proceeds to another the euro or US dollar markets. We have already seen in excess currency. “There is a tremendously strong bid for 30-year paper of 35 tranches of €1 billion [US$1.3 billion] or more in the at the moment. But liquidity in the cross-currency hedging eurobond market and north of 140 tranches of US$1 billion market tails off after around 15 years, so the longer tenors will plus in the USD market,” he says. “We expect investment-grade mostly suit Australian companies with US dollar income to borrowers in Australia to continue to use capital markets debt match their US dollar liabilities,” says Farrant. to ease refinancing risk.” Deal issuers and lead managers say the responsiveness of The US issue brought to market by global investors to credit has paved the way for Australian debut (Newcrest) subsidiary, Newcrest Finance, in late September issuers to approach a number of markets – including non-US provides an illustration of the level of demand. Will Farrant, options. For instance, although some corporate treasurers have head of debt capital markets at Credit Suisse in Sydney, reveals that the transaction’s 10-year tranche was “There has been a continual inflow whispered at 270 basis points over US Treasuries, launched with an indicative of funds to fixed income, with high- margin of 260-265 basis points and grade corporate bond funds seeing priced at 255 basis points. The 30- unbroken positive weekly inflows year notes also priced 10 basis points tighter than their indicative level, at this year.” 280 basis points over Treasuries. Chad Karpes B ank of America Merrill L ynch

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Bush agrees that the debt USD high yield for sub capital markets offer sub- investment grade corporates investment grade issuers many advantages. “High-yield has no financial maintenance The US high-yield market has started to work again for Australasian covenants, no amortisation issuers, with four deals launching in quick succession around the turn and no cash sweep requirement. There is also of the fourth quarter. outright availability at a time when banks are pulling back in The market had provided deals done for Aurora Oil & Gas, US$359 billion of issuance some areas of the market,” he nearly US$8 billion of funding one for , and a US$2 this year, up 11 per cent on last explains. to Australian issuers – mainly in billion high-yield bond issue and year’s corresponding period. the resources sector – in 2012 US$5 billion TLB for Fortescue “As traded markets, both are A combination of lack of by mid-October (see table on Metals Group. subject to fluctuation. But at supply and increased inflow of this page). the moment they are very funds has pinned favourable “In the US, there are two key strong due to investor demand. undercurrents for Australian Unlike the US private placement sub-investment grade leveraged We expect this will continue to corporate issuers. “There market, which is typically most loan markets: the 144A high- be the case when it comes to hasn’t been a lot of new supply receptive to investment-grade yield market and TLB market. investor interests in Australian due to reduced M&A activity companies – though formal The majority of Australian issuers,” Bush says. globally – over 60 per cent ratings are not always required issuers in those markets have of all high-yield issuance and – the high-yield and term loan been resources companies. “The advantage of the US debt close to half of the leveraged B (TLB) markets offer debt Most of these companies have market includes tenors up to loan market has been for funding to sub-investment their earnings in USD so there 10 years, the choice between refinancing of existing deals. grade issuers. The US high- is a natural currency match,” secured and unsecured, However, the high-yield yield market provides a broad Kevin Bush, Sydney-based head incurrence-based covenants market and the leveraged loan range of investors including of leveraged capital markets only, flexibility in use of funds market have seen net mutual mutual funds, asset managers, Australasia at UBS, tells and a larger, diversified investor fund inflows of US$23 billion hedge funds and insurance KangaNews. base,” explains Paul Allan, and US$4.7 billion this year, companies, which benefited Sydney-based managing respectively,” says Bush. Nufarm’s debut seven-year According to Bush, there has director at Credit Suisse – a 144A and Linc Energy’s recent been US$253 billion of issuance lead on Nufarm’s issue. “Unlike According to a company five-year issue. in the high-yield market so Australian bank debt, 144A statement, Linc Energy issued far this year as of October 12 notes contain no maintenance its notes to fund its Gulf Coast UBS Investment Bank (UBS) 2012, up 38 per cent on last and earnings-based covenants. oil and gas assets and to has been actively involved year’s comparable period, and The issuer can also issue pay down existing debt. “We in USD high-yield and TLB already 16.5 per cent more incremental debt to finance believe this to be the most transactions for Australian than 2011’s total volume. The acquisitions, and undertake cost-effective way of accessing companies this year, with two leveraged loan market has seen restructuring and asset sales.” the capital needed to continue to develop our oil and gas AUSTRALASIAN HIGH-YIELD ISSUES, 2012 assets when our share price is trading at what we believe Issuer Issue month Volume Maturity (US$m) is a very significant discount Reynolds Group February 1,250 Aug 19 to fair value. We do not want Aurora Oil & Gas February 200 Feb,17 to issue equity or convertible March 1,000 Apr 17 debt in the current market, 1,000 Apr 22 which arguably would be very Aurora Oil & Gas July 165 Feb 17 expensive money based on Reynolds Group September 3,250 Oct 20 Nufarm September 325 Oc 19 our current share price,” states Linc Energy October 265 Oct 17 Peter Bond, managing director Ausdrill Finance November 300 Nov 19 of Linc Energy. Source: Bloomberg, KangaNews October 31 2012 Ausdrill Finance’s deal is also a refinancing trade: “High yield has no financial maintenance the company revealed in an covenants, no amortisation and no cash Australian Securities Exchange sweep requirement. There is also outright announcement that the proceeds of its issue will be availability at a time when banks are used to repay US$250 million pulling back in some areas of the market.” of existing debt under its Kevin Bush UBS Investment B ank US$550 million syndicated bank facility.

32|kanganews november 2012 AUSTRALIAN OFFSHORE CORPORATE DEAL DISTRIBUTION Total Deal Investor Investor location book Issuer Lead managers Currency volume type distribution volume (M) distribution (per cent) (M) Newcrest Barclays, Credit Suisse USD 1,000 2,800 See charts on this page 90 US/10 other Finance Westfield BAML, Citi, Deutsche Bank, J.P.Morgan USD 500 1,750 90% fund manager/insurance Not disclosed Group SPI Australia Deutsche Bank, HSBC, RBS USD (Reg S) 500 2,500 See chart on p34 70 Asia/30 other Assets 31 Germany/24 UK/21 France/13 other Origin Energy Barclays, Deutsche Bank, J.P.Morgan EUR 500 2,500 See chart on p34 Eurozone/7 Switzerland/4 other APT Pipelines Citi, Morgan Stanley USD 750 1,800 Not disclosed Not disclosed Sydney Airport BAML, BNP Paribas, J.P.Morgan, RBS USD 600 3,000 Not disclosed 80 US/20 other Holdings

Source: Deal issuers, lead managers October 2012 raised doubts about whether the Reg S market itself could “In terms of demand for Australian credit and the ability support a benchmark-sized deal, one issuer has already proved to convey your credit story to investors, euro is an attractive the task can be achieved. option,” Peel suggests. “Looking at where Australian issuers’ On September 28 SPIAA completed its first standalone bonds are trading in Europe relative to the US 144A market, Reg S transaction with the issue of US$500 million of bonds you can see that European investors are very much willing to maturing in April 2023. As with many recent offshore issues by do the work to educate themselves on credit – and they value Australian corporates, the SPIAA notes were supported by a exposure to the Asia Pacific region. The basis swap will always substantially oversubscribed order book (see table on this page), play a role in pricing but the underlying conditions in Europe with more than 140 accounts eventually participating in the deal. itself are very accommodating right now.” “There have been many corporate issuances in the USPP However, it is the US 144A market which continues to be and 144A markets. However, SPIAA is owned by Singapore the biggest draw for Australian corporates. Chad Karpes, head Power, a company with strong recognition from the Asian of debt capital markets and syndicate at Bank of America investor base, so it made sense for us to issue a debut Reg S deal. In fact, SPIAA is the only Australian corporate to have NEWCREST FINANCE DISTRIBUTION (PER CENT) a new bond issued in Reg S-only format in the last two years. We see that as a good benchmark for other Aussie corporate 10-year tranche issuers,” says Gillespie. Bank/PB other 4 It is also possible to capitalise on the appetite for Australian 2 assets via more conventional US 144A issues. Christine Kelly, pension treasurer at Sydney Airport Corporation (Sydney Airport), says 4 her firm roadshowed its recent 144A deal in Hong Kong and Singapore as part of its strategy of diversifying demand for its insurance US dollar bonds. In the end, two thirds of the largest investors asset manager 25 in the Sydney Airport deal were new accounts for the borrower. 65 While the US dollar continues to be the most-issued foreign currency by Australians, Origin’s deal also illustrates the potential strength of the euro market, its leads say. Preda tells 30-year tranche KangaNews the transaction was dominated by German, UK and Bank/PB French accounts. It was priced around 50 basis points inside other 1 9 where Origin’s outstanding US dollar deal was trading on a US pension dollar Libor basis. As of October 18, the bonds had tightened 2 approximately 22 basis points since issue, to mid-swap plus 138 basis points, and traded at 173 basis points over US dollar Libor compared with 211 basis points over for the company’s USD insurance asset manager issue. Although she also points to the two-year difference in 20 68 tenor between the two deals, Preda at Barclays says the pricing gap highlights the variation that can arise between markets and how different investor bases may think about different industries and credits. Source: Joint lead manager October 2012

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spi australia assets distribution (per cent) origin energy distribution (per cent)

pB bank bank Agency 7 4 7 2 insurance insurance 7 8

public sector 14

asset manager asset manager 65 82

Source: SPI Australia Assets October 2012 Source: J.P.Morgan October 2012

Merrill Lynch in Sydney, points out that the US market in Doing that work ahead of deal launch can be vital in particular has seen more funds available to fixed income, which Europe. “The key way to minimise execution risk for issuers is helped investors to remain liquid. “There has been a continual to be well positioned and nimble – Origin had documentation inflow of funds to fixed income, with high-grade corporate in place, a roadshow completed and simply waited for the right bond funds seeing unbroken positive weekly inflows this year. day to execute. The strength and quality of the order book and The year to date average weekly inflows is more than twice the aftermarket performance demonstrates that Origin got the average in 2011,” Karpes tells KangaNews. timing right,” agrees Raynes. The timing of deals around the turn of the final quarter “My suggestions for first-time Australian issuers looking is no surprise, either. “The bond market continues to be to access the euro market are to monitor market conditions technically driven, which is favouring corporate issuers in and ensure you conduct a thorough marketing roadshow,” particular. Spreads in the 144A market continue to tighten concludes Peter Rice, general manager, capital markets at Origin driven by a lack of supply, as some issuers have been in post- in Sydney. result blackout periods,” comments Stewart at BNP Paribas. Careful timing also applied to APA in its debut 144A transaction. Ollie Williams, vice president, capital markets Execution risk origination at Citi in Sydney, tells KangaNews: “APA had been ffshore issuance continues to be a natural consequence patient in waiting for an opportune market window to emerge of Australian borrowers’ increasing focus on the and, having completed its investor marketing work well in Oimportance of execution risk. “The strong liquidity advance of the launch date, the company was able to move very and overall depth the US dollar market offers certainly assists in swiftly to capitalise on the positive primary market backdrop.” minimising execution risk for issuers,” suggests Karpes. Williams says this kind of market approach is useful In the euro market, timing may be more important. Stuart in general. “We recommend issuers, especially inaugural Raynes, executive director of syndicate, debt capital markets at borrowers, stay open to engaging with new investors – in some J.P.Morgan in Sydney, says the success of Origin’s deal can in cases on an ongoing basis – well in advance of the funding part be attributed to the issuer’s good selection of execution requirement and transaction launch. This, together with having time. “The European market typically reopens in September documentation ready, will allow borrowers to move nimbly into after the summer holidays so the timeline was always to be on constructive market windows and thereby ensure funding and the road in mid-September after an accelerated documentation pricing objectives are achieved.” process,” Raynes explains. “Post-roadshow we gave accounts Market participants say being ready to issue in the US is not sufficient time to do their credit work and waited for a especially onerous although it is a somewhat longer process. constructive day to launch.” One law firm source tells KangaNews establishing a 144A

“We remain committed to maintaining a close dialogue with our lenders and investors and will seek to build our capital markets profile and curve over time. Newcrest wanted to ensure that it built out a curve and that it wasn’t seen as a one-time issuer.”

Ben Mc Cormick Newcrest Mining

34|kanganews november 2012 “The key driver for SPIAA to choose execution time was the current vibrant global capital markets which were further boosted by the QE3 announcement. That saw an increase in demand for good corporate credits and led to a tightening of pricing to benchmarks.”

David Gillespie SPI A ustralia A ssets programme is likely to take eight to 12 weeks – double the lead funded through capital markets debt. In the US corporate time necessary for an Australian dollar programme and roughly sector the equivalent figure is closer to 75 per cent. a third longer than that for EMTN issuance. According to “Borrowers in Australia and New Zealand are very Standard & Poor’s, the rating process is likely to take four to six fortunate that the strength of the banking sector has kept bank weeks from request to publication. funding in relatively abundant supply at a reasonable, albeit In markets that are less consistently available than the US – higher, cost. The flexibility of bank funding makes it a useful including the euro and, even more so, Reg S – being a known tool for corporate borrowers. However, the diversification quantity as an issuer can be a huge asset. For SPIAA, a parent and tenor extension benefits of bond markets means capital company’s recent issue supported its deal timing – though markets funding should form part of prudent corporate improved credit appetite was also clearly key. borrowers’ funding strategies,” adds Peel. “The key driver for SPIAA to choose execution time was Changed pricing dynamics are turning a theoretical desire the current vibrant global capital markets which were further for more diverse funding into an economic imperative. “Post boosted by the QE3 announcement. That saw an increase in financial crisis, corporates are able to issue bonds offshore at demand for good corporate credits and led to a tightening of levels cheaper than banks fund themselves in the bond markets, pricing to benchmarks,” Gillespie tells KangaNews. “In addition, with tenors well beyond the five years typically available in a Singapore subsidiary of Singapore Power, which is SPIAA’s the bank debt market. This is supporting the ongoing trend parent company, had issued in the US dollar Reg S market three towards diversification of corporate funding sources,” says weeks prior to our deal. That certainly provided a good path Preda at Barclays. for us to follow in terms of pricing and having an investor base “While I don’t think you will see Australia align with familiar with the group.” offshore peers in the near future, I do think you will see that While noting the advantages of Reg S issuance, Peel also divergence narrow as more Australian investment-grade warns that the market can be difficult for unknown issuers. borrowers access capital markets,” adds Peel. “There are benefits to the Reg S market in terms of speed Newcrest’s McCormick tells KangaNews bank loan and of issuance compared with the 144A market and the ability capital market funding serve different purposes for the to build an investor base that will also look at AUD bonds. company. “We highly value the banking relationships we have However it can be difficult to achieve a fair price, relative and will always seek to maintain facilities that provide us the to other markets, for issuers that lack a high level of name high level of liquidity that our conservative treasury policies recognition,” he says. require. The capital markets provide us with longer tenor and fixed interest rates with a capital market covenant package. Issuer strategy As a long-life mining producer 10- or 30-year money better he receptiveness of global credit markets is allowing suits our business profile, but the two funding markets are Australian corporates to continue the process of complementary.” Tdiversifying their funding from a traditional heavy The 144A transaction significantly expanded Newcrest’s reliance on bank debt. According to Preda, only approximately buying base, which was a key strategic aim of the issuer. Farrant 25 per cent of Australian corporate balance sheets have been at Credit Suisse says new investors accounted for approximately

“There is a tremendously strong bid for 30-year paper at the moment. But liquidity in the cross-currency hedging market tails off after around 15 years, so the longer tenors will mostly suit Australian companies with US dollar income to match their US dollar liabilities.”

Will Farrant Credit Suisse

35 Cover Story 2

from Australian corporates. “They simply don’t have the Follow-up trade in AUD funding requirement,” suggests Stuart Raynes, executive might be the way out director, debt syndicate at In the ongoing discussion on the development of the Australian bond J.P.Morgan. “For instance, market, BHP Billiton’s October issue provided a level of comfort (see the Origin Energy transaction could easily have been upsized story on p22). Market participants are interested to find out whether but was kept at €500 million the local market can share in the surging offshore corporate issuance. [US$655.7 million] as that was all the company required. I Some believe the AUD bond issuance requirements. We’d On a swapped-back basis it also personally think it is a case-by- market might just be able like to see longer-dated debt provided the most competitive case situation and many times to accelerate growth post in our portfolio too and the pricing for the tenors and the issuers accessing offshore the BHP Billiton deal, on the domestic market starts to volume we were targeting.” markets have executed seven- back of strong Asian buying. get illiquid beyond five years,” to 12-year funding, or longer, “Asian accounts have been says David Gillespie, the firm’s Sydney Airport’s deal was for which is more challenging in keen buyers of a wide range of general manager, finance 2023 maturity paper, which the domestic market.” Australian credit, particularly strategy and treasury. exceeds the duration the in AUD during 2012, with Australian dollar market tends Peel is also conservative on the BHP Billiton trade being Offshore issuance continues to be most comfortable with. the AUD tranche solution. testament to that. I don’t think to make more sense, Gillespie “I’m not sure you can make they are targeting a specific adds. “The basis swap is However, John Bailey, managing that inference as the BHP profile, rather something making offshore funding more director and Australian Billiton trade was a standalone which is priced at a level which expensive than domestic country head at Standard & AUD issue as opposed to an makes sense compared to bank and bond funding for a Poor’s, believes that over time additional tranche to any of other deals,” says Brad Peel, shorter-dated deal, but it is corporates could start to place their other jumbo transactions vice president, capital markets more about managing liquidity Australian dollar tranches this year. I think we would and treasury solutions at and diversity of funding.” alongside an offshore issue. be doing an issuer a great Deutsche Bank. disservice to encourage them Some Australian issuers say Gillespie thinks this approach to execute an AUD trade SPI Australia Assets (SPIAA) the fact that they continue to could be workable. “It is realistic side-by-side as it increases the is a classic Australian issuer bring US 144A deals is not a to see a potential where issuers execution risk and noise while in the sense that its domestic sign of a systemic preference can place an AUD tranche distracting focus from each profile is not matched by for that market but simply the alongside their offshore investor base,” he says. execution confidence in the fact that it continues to offer issuance because there are local market. In February the best all-round debt funding more investors, particularly in However, Peel thinks the 2012 SPIAA issued A$400 option. For instance, Sydney Asia, who are willing to buy AUD. solution might lie in a follow- million (US$414.8 million) of Airport’s treasurer, Christine That being said, the liquidity will up AUD issue post offshore five-year fixed rate domestic Kelly, tells KangaNews: “We be low and the tranche size will funding. “A follow-on issue bonds. “We have two issues were looking at all markets be small,” he comments. in the Australian market is in the domestic bond market but this time 144A seemed certainly a viable option, which but given the size of our debt to operate better than the For the moment, international will allow a more focused portfolio, the domestic market others, especially in reacting to intermediaries do not expect interaction with each investor can’t support our overall negative news out of Europe. to see multi-tranche issuance base,” he confirms.

“We were looking at all markets but this time 144A seemed to operate better than the others, especially in reacting to negative news out of Europe. On a swapped- back basis it also provided the most competitive pricing for the tenors and volume we were targeting.”

Christine Kelly S ydney Airport

half the book and the deal more than doubled the number of remain committed to maintaining a close dialogue with our accounts in the Newcrest investor universe. lenders and investors and will seek to build our capital markets “We have successfully implemented our immediate profile and curve over time,” confirms McCormick. “Newcrest funding strategy, renewing and increasing our bank bilateral wanted to ensure that it built out a curve and that it wasn’t seen loan facilities and issuing 10- and 30-year bonds. However, we as a one-time issuer.”

36|kanganews november 2012 “There are benefits to the Reg S market in terms of speed of issuance compared with the 144A market and the ability to build an investor base that will also look at AUD bonds. However it can be difficult to achieve a fair price, relative to other markets, for issuers that lack a high level of name recognition.”

Brad Peel Deutsche B ank

SPIAA expresses a similar plan to access public markets to engaging the market, says Peel. The depth and consistency and build up a curve. Its recent deal was issued off the of the US market makes it clearly the easiest place to establish borrower’s existing US$4 billion EMTN programme. The a curve. For example, while Rice at Origin tells KangaNews his focus on US dollar issuance was driven by the desire to firm’s inaugural senior euro deal was executed in an easy process diversify funding sources and to continue to build a public under its new EMTN programme, established in September curve in major global markets, Gillespie tells KangaNews. There 2012, the company’s return to the market is not guaranteed. is a coordinated approach across a number of issuers in the “Whether we establish a liquid curve in euros will depend on Singapore Power group to manage the overall requirements market conditions and Origin’s need for capital,” he explains. and liquidity risk, he adds. Gillespie confirms that SPIAA has been well-supported by Underlying supply other markets and does not have an immediate need for 144A ustralian corporate issuers are fully aware of their issuance. He also says, in the near term, the firm’s preference funding options, and third-party evidence suggests will be for benchmark market instead of private trades as Athere is an increase in the number of Australian part of a strategy to build yield curves in major public global corporates getting ready to access the debt capital markets. markets as a group. John Bailey, managing director and country head at Consistent issuance is likely to be beneficial in the major Standard & Poor’s (S&P) in Melbourne, reveals: “Recently, public markets. “We are seeing more and more corporates S&P has seen a strong increase in new rating requests from going to the offshore markets with the intention to be semi- companies based in Australia. This suggests that more and frequent issuers and build an ongoing rapport with investors. more Australian corporate treasurers may be preparing to I think that is the right attitude to take as it will yield benefits access the market when conditions are suitable. These rating when the issuer requires access to capital in more constrained requests are coming mostly from the mining and resource times,” agrees Peel. sectors. Interest from non-investment-grade credits is also on Sydney Airport has now issued two 144A deals, and the rise, albeit from very low levels.” Kelly comments: “This second issuance into the US market Philip Harvey, Sydney-based partner at King & Wood demonstrated to us how important it is to keep investors Mallesons, adds: “We have seen an increase in levels of enquiry familiar with our credit and to continue to access a market. as to how to access the debt capital markets from corporate We would like to increase our liquidity in the market but will treasury teams across a wide range of industry sectors. Interest continue to explore other market opportunities each time we in both the retail and wholesale space in Australia remains look at a refinancing task.” strong and we have been engaged with a number of new Stewart says Sydney Airport enjoyed the best of both entrants and some issuers who have been in the markets worlds. “Sydney Airport is benefiting from being a repeat issuer, historically and are now looking again to this space.” which shows commitment to the market and developing its However, whether the domestic bond market can reap the investor base,” she comments. “The fact that part of its strategy fruits of this desire for diversity of funding – especially when was to diversify the investor base further, with a focus on Asia offshore avenues remain so fruitful – remains a discussion and non-US investors, gave some deal momentum on the point (see box on facing page). • back of strong underlying market conditions.” For regular offshore “We recommend issuers, especially issuers, such as Westfield Group, a visible and inaugural borrowers, stay open to engaging developed secondary curve with new investors – in some cases on will get a much high level an ongoing basis – well in advance of the of certainty on price and execution than a debut funding requirement and transaction launch.” or infrequent issuer, prior Ollie Williams Citi

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