Glencore debut reinforces relevance of Australian market for global names
- Monday, 15 September 2014
The largest true-corporate bond issue in the Australian domestic market for nearly a year reinforces Australia's position in the funding toolkit for global credit issuers, lead managers say. This is also demonstrated by the fact that the average number of investors participating in these transactions is growing.
On September 12, Glencore Australia Holdings (Glencore) printed its debut transaction in the Australian market. The five-year deal priced in line with guidance, at 140 basis points over swap, for final volume of A$500 million (US$450.6 million).
The Australian corporate market has not seen a single deal of this size for almost a year, since Anglo American brought its debut – also five-year – deal in November 2013. Perth Airport, Qantas Airways and Scentre Group have all printed deals at a A$400 million final volume, in March, June and August this year respectively.
Greater relevance
Glencore's size ambitions fitted neatly with the Australian domestic market's best capacity, reveals Sydney-based Brad Scott, head of corporate bond origination at National Australia Bank (NAB) – a joint lead manager on the transaction with ANZ and UBS.
Scott says: "A final print of A$500 million was Glencore's target. There was no explicit objective to take any more despite the broad view that there would have been capacity to do so. The issuer wanted to establish a strong debut print and for investors to have a positive experience on this inaugural transaction."
The early signs are positive for investor experience, as Scott adds: "The bonds are indicated a few basis points inside the reoffer spread in the secondary market on September 15."
Meanwhile, Ron Ross, head of capital markets Australia at ANZ in Sydney, suggests that the Australian market continues to grow in relevance for a greater number of global names. He says: "We are now seeing confidence by large offshore companies that they can get away decent-sized Australian dollar issues and competitive levels."
As a global issuer with a sizeable amount of debt outstanding, the basis for Glencore's execution in the Australian market was always going to be where pricing stacked up versus offshore comparables, Scott continues. The issuer has recently completed a long-seven-year transaction in the European capital markets and this provided investors with a fresh pricing reference point.
Scott reveals: "With pricing on the issuer's €700 million [US$906.7 million] seven-year equating to around 160 basis points area over [Australian] swap, on a linear extrapolation the new five-year transaction priced in line with the theoretical fair-value curve from the issuer's perspective."
Five-year springboard
The Australian domestic market has been on Glencore's radar for the best part of 18 months as part of the company's strategy to diversify its funding sources, Ross tells KangaNews. The issuer commenced investor marketing more recently. Ross reveals: "ANZ undertook a documentation process going back several months followed by a roadshow in Asia, as well as Sydney and Melbourne, in July."
Since the completion of the roadshow, Ross continues, there was continual enquiry from investors about the expected timing of a transaction. "All that remained was to find the right window of opportunity for Glencore to access the market in order for it to achieve the optimal result," he says. "We found this after the corporate reporting season blackout period, among a scarcity of corporate supply in the Australian bond market."
Five years is the traditional springboard for the majority offshore corporate names to debut in Australia and therefore this tenor was on Glencore's radar from the outset, Scott adds. "BHP Billiton, Anglo American, ABB, BP Capital Markets and Mitsubishi Corporation all launched their debut deals in the Australian market at this maturity. This is undoubtedly where issuers find the broadest investor participation initially and therefore where was always going to be most appealing for Glencore."
In fact, with around 90 investors in the final book, participation by number of accounts was over twice the average NAB has seen across the Australian dollar corporate deals it has brought to the market this year. "This speaks not just to the local appeal that Glencore has to investors but also to the global recognition this name has in the resources space," Scott adds.
"The final order book was comfortably oversubscribed at more than A$700 million and was made up of 67 per cent domestic accounts," Ross reveals. Lead-manager data additionally show that the remainder was almost identically split between European and Asian accounts. Asset managers bought 75 per cent of the book.
