AGIG’s consolidated funding vehicle rubber-stamped by market debut

Australian Gas Infrastructure Group (AGIG)’s recent domestic deal was the first under its new financing entity which incorporates assets well-known to the Australian market under one programme. It follows a consent-solicitation process and debt consolidation that have garnered significant efficiencies for the issuer.

AGI Finance, the financing entity of AGIG, printed an aggregate A$750 million (US$548.6 million) deal on 16 November, comprising A$325 million 2026 and A$425 million 2028 tranches. Goldman Sachs and Westpac Institutional Bank were joint lead managers.

AGIG is the umbrella corporation for Australian infrastructure assets owned by Hong Kong-based CK Group, including familiar Australian dollar debt capital markets issuers Dampier-Bunbury National Gas Pipeline (DBNGP), Multinet Gas and Australian Gas Networks (AGN).

AGI Finance consolidates the debt and funding requirements of DBNGP, Multinet Gas and AGI Development – an AGIG unregulated entity. The consolidated entities have around A$3.7 billion in outstanding debt even though AGN remains outside the funding vehicle.

Paul May, Adelaide-based chief financial officer at AGIG, tells KangaNews when AGIG was formed in 2017 it became quickly apparent that it would be less efficient to manage the individual funding programmes of the respective entities within AGIG separately given their varying credit profiles and strengths.

The consolidated funding vehicle, of which AGI Finance is the financing entity, provides ratings uplift across the individual assets. The group has senior-secured ratings of BBB+ from S&P Global Ratings and A3 from Moody’s Investors Service. This is a two-notch upgrade for DBNGP, while the Moody’s ratings are new for Multinet Gas and all ratings are new for AGI Developments.

“The strength of the consolidated entity is greater than the individual parts and gives AGIG considerably more scale and flexibility to gain efficiencies in financing for these assets,” May explains.

Consolidation process

Implementing the common funding vehicle required an extensive structuring process, says Joe Hunt, executive director at Goldman Sachs in Sydney – which also acted as financial advisor throughout the process.

He adds that the significant credit-rating enhancement, secured platform and simplification of the borrowing structure received overwhelming support from AGIG’s bank financiers and debt capital markets investors in various consent processes.

The issuer first amended its debt terms with banks, followed by capital-market engagement. ANZ led the consent-solicitation process with Australian dollar bondholders of DBNGP and Multinet Gas, eventually receiving support for the extraordinary resolution from holders representing 99.5 per cent of DBNGP’s notes and 96.5 per cent of Multinet Gas’s notes. Multinet Gas’s US private placement investors gave universal consent.

“The various stakeholders needed to do a lot of work to familiarise themselves with the credit profiles of all the various entities, which took time. But the resulting structure has provided AGIG with a best-in-class financing platform and credit enhancement for all lenders involved,” Hunt comments.

May says AGIG drew confidence from the consent-solicitation process for its debt market deal, given the positive feedback and strong endorsement for the measures.

Market move

Following the consolidation, which completed in early November AGIG turned its attention to a debut deal under the new financing entity. May says the target was always to come to public markets as soon as a conducive execution window became available.

The scale of the consolidated entity means AGIG now has numerous market options but May says it is yet to establish funding programmes or undertake the necessary investor relations for a euro or US dollar deal. A domestic debut was therefore the natural option.

Domestic market conditions remain conducive for new issuance even though new issuance has slowed in recent weeks, Gary Blix, Sydney-based head of corporate origination, debt capital markets at Westpac Institutional Bank, tells KangaNews.

“Despite a period of heightened volatility following the Reserve Bank of Australia’s November monetary policy decision, the US elections and vaccine announcements resulting in a significant rally in credit spreads, the market remained supportive of adding risk,” he says.

Hunt says secondary trading levels of comparable regulated-infrastructure bonds tightened materially in early November, driven by net negative supply and Pfizer’s vaccine efficacy announcement. AGIG decided to print long five- and eight-year lines to fill gaps in its debt maturity profile.

The issuer canvassed domestic and offshore accounts – including several new to AGIG – in a global investor call on 11 November and through several one-on-one meetings. It left the rest of the same week for investors to do credit work before launch and pricing intraday on 16 November.

Many investors had previous experience with two of the three entities under the recently established common funding vehicle. This, as well as the additional scale, diversification and uplift in credit profile, allowed the transaction to be marketed and priced within a week, Blix adds.

Hunt reveals the combined book peaked at nearly A$1.3 billion, skewed to the five-year tranche, and ended at around A$1 billion as the price tightened by 15 basis points on both tranches. Final pricing provided AGIG with a highly competitive cost of funds when compared to its other debt options, he adds.

The five-year tranche was primarily allocated to domestic investors, while regional accounts contributed a significant portion of eight-year demand. Asset managers were to the fore in both tranches (see charts 1 and 2).

May says AGIG’s intention is to establish an offshore funding presence in future. However, it will also remain active in the Australian dollar market through AGI Finance and AGN.

Source: Goldman Sachs 18 November 2020

Source: Goldman Sachs 18 November 2020