Thursday 21 July 2016 01:41 PM
Auckland Council raising $200 mln in bond offer at higher rate than last issue
By Sophie Boot
July 21 (BusinessDesk) - Auckland Council will raise up to $200 million through a 10-year retail bond issue, at a higher
indicative margin than its last offer in March.
Last month, the council deferred a planned offer, citing market volatility which followed the UK's referendum vote to
exit the European Union.
The council wants to raise up to $100 million, with the right to accept up to $100 million in oversubscriptions, and
said the bonds would mature in July 2026 and will be offered at an indicative margin of 0.9 percent per annum over the
comparable benchmark. The 10-year swap rate, a benchmark for corporate borrowing, was recently at 2.45 percent,
indicating Auckland Council will pay 3.35 percent.
The council's last retail bond issue, four months ago, raised $250 million selling four-year bonds at an annual interest
rate of 3.04 percent, a record low for the local authority in New Zealand's biggest city. The council set the coupon at
60 basis points over the comparable swap rate, then at 2.43 percent.
"All issuers in the marketplace have been required to pay a higher margin when they've been accessing the financial
markets, and we've seen that most predominately in the financial sector - banks have had to pay higher spreads," Fergus
McDonald, head of bonds and currency at Nikko Asset Management, said. "It's been a function of global trends, banks
especially in the Eurozone and with large exposures into Europe have been deemed to be a little more risky, banks in
general have to pay higher credit margins. That's flowed on to all issuers, because investment markets in many cases are
about comparisons between alternate uses of your funds - if one large sector get pushed up that tends to push up all
issuers, and Auckland has not been immune from that."
The offer is reserved for clients of the joint lead managers - ANZ Bank New Zealand, Bank of New Zealand and Westpac
Banking Corp - along with institutional investors and other approved participants. The actual margin and interest rate
of the bonds will be announced following a bookbuild after the offer closes tomorrow.
Record low borrowing costs have lured companies back to the debt market to raise funds, with Genesis Energy, Meridian
Energy, Spark New Zealand, Auckland International Airport and Fonterra Cooperative Group all selling new bonds this
year. The council said it expects the bonds to be quoted on the NZX debt market and expects they will have a long-term
credit rating of AA from Standard & Poor's and Aa2 from Moody's.
(BusinessDesk)
ends