Global companies have Australian credit investors in their sights

From

Ashley Kopczynski

What do AT&T, Heathrow Airport, General Motors, and Thames Water all have in common?

All four companies have recently engaged with the Australian fixed income market in a bid to diversify their debt funding profiles.

There are various reasons why these firms are looking at the Australian corporate bond market. Some are doing it to take advantage of favourable market conditions in the cross-currency swap markets (the additional cost to swap money in one currency, in this case the Australian dollar, to another currency). Others are doing it to fund recent merger and acquisition activity, planned capital expenditure, or to diversify their funding sources via a new pool of investors.

US telecommunications company, AT&T, was first in the market. The company gave an introduction to domestic investors on a Wednesday and by week’s end had raised $1.325bn in a multi-tranche deal. The largest tranches were $475m of a five-year maturity with a credit spread of 125 basis points (bps) and $400m with a 10-year maturity and a credit spread of 200bps. AT&T has recently concluded its US$85bn acquisition of Time Warner, and with its large debt position (US$190bn) AT&T took the opportunity to tap a new pool of debt investors.

In early October 2018, Heathrow Airport issued $175m of bonds with a 10-year maturity at a credit spread of 140bps. Heathrow airport is looking at undertaking a major expansion in the coming years, with the construction of a new runway, and is introducing the company to Australian investors ahead of this major capital expenditure program. As I have previously written, domestic investors have a strong willingness to lend to key infrastructure assets like airports, and Heathrow (the largest airport in Europe) was no exception. This is a sector that we have been increasing exposure to and we took this opportunity to add Heathrow Airport bonds to our Australian fixed interest portfolios.

Thames Water (UK’s largest water supplier) is also courting Australian investors, but is yet to launch a bond deal. In addition, General Motors’ management has engaged the domestic investor base, looking to diversify its funding sources and to get ready for the launch of its financial services business in Australia.

Regardless of whether these last two firms actually launch public bond deals in the Australian market or not, to us the message is clear – the Australian corporate bond market is open to global firms that wish to add a new investor base and source of funds to their debt profiles.

The 10-year maturity is also particularly noteworthy. A criticism of the domestic corporate bond market has often been the inability to execute longer tenor deals. The more deals that are done at these maturity levels, the more confidence prospective issuers will have that they can achieve this duration in the Australian dollar corporate bond market.

By Ashley Kopczynski, Credit Analyst

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