The issuer includes Australian dollar as one of five core currencies it aims to access regularly. It began issuing in Australian dollars through its EMTN programme in 2021, beginning with a A$160 million print and a A$150 million green bond on back-to-back days in February last year. It issued another pair of smaller EMTNs before executing its first public benchmark through the programme on 16 June 2021, in the form of a seven-year, A$750 million green bond (see table).

CPP INVESTMENTS AUSTRALIAN DOLLAR DEALS

Source: KangaNews 30 August 2022

The issuer’s investor engagement work around the EMTN deals convinced it that Australian dollar investors wanted a Kangaroo curve to facilitate their credit work. CPP Investments completed the documentation for its Kangaroo programme earlier in 2022 with a goal of becoming a “relatively programmatic” issuer in the market, including in green format, where demand allows.

“In our roadshow earlier this year, local investors were interested to learn about our asset presence in the Australian market,” says Sam Dorri, Toronto-based managing director at CPP Investments. “Establishing the Kangaroo programme was a welcome means to invest in our programme, given the enhanced liquidity associated with repo and index eligibility under Kangaroo documentation.”

Daniel Wilson, vice president, DCM Asia Pacific at RBCCM in Sydney, tells KangaNews the deal was timed around the end of CPP Investments’ blackout period in early August and during a lull in data prints and central bank actions. “Timing was very much a function of the issuer coming out of blackout, market conditions being stable and there being a clear window for issuance,” he adds. “As a result, CPP Investments moved quickly to take advantage of the conditions and backdrop to achieve a strong result.”

The transaction is the second largest Kangaroo bond executed by an SSA so far in, following European Investment Bank’s A$1.5 billion five-year sustainability-awareness bond that opened the Kangaroo market on 5 January. SSA issuance slowed as global volatility and rates uncertainty took hold during the first half of the year, increasingly taking the form of smaller taps.

However, more substantial deals have started to emerge periodically – most recently a A$500 million print by IFC. By entering the Kangaroo market, CPP Investments can achieve larger lines from less frequent trips to the market than would be possible through EMTN issuance, according to Craig Johnston, Sydney-based director and head of DCM syndicate at Deutsche Bank.

The issuer targeted volume of A$500 million or more for the transaction, and it was able to upsize to A$1 billion on the strength of a final orderbook of nearly A$1.3 billion according to lead manager data.

Dorri explains: “Our volume aspirations were A$500 million in line with recent SSA Kangaroo transactions, but we were open to a larger size should demand warrant. We have a sizeable global investor base of official institutions, and the enhanced liquidity associated with the new Kangaroo documentation likely drove larger interest.”

Demand came largely from offshore, with Asian accounts taking the majority of the book (see chart 1). Johnston notes this is not unusual for debut issuers in the Australian market and local demand often develops in subsequent offerings.

Source: CPP Investments 25 August 2022

Source: CPP Investments 25 August 2022

Apoorva Tandon, Singapore-based head of Asia syndicate at TD Securities, says the orderbook comprised very high-quality investors across APAC and EMEA.

“In addition to the strong investor following CPP Investments has established over the years, there was strong rarity value attached to this offering given the inaugural nature of the issuer in Kangaroo bond format and the uniqueness of the CPP Investments credit in the Australian dollar SSA universe,” Tandon says.

Tandon says the buy side was also ready for slightly longer tenor. CPP Investments’ deal is the first new five-year SSA benchmark since February. “The market was incredibly volatile in the earlier part of this year and this has kept supply mainly to shorter tenors,” he notes. “However, in recent weeks we have seen some rebasing of rates and improved market conditions, and as such a number of investors have been looking for suitable opportunities to term out.”

Dorri explains that while CCP Investments was open to shorter tenor and would consider three-year deals in the future, demand was deepest in the five-year part of the curve.

Johnston agrees that investors appear to be getting more comfortable with longer-dated transactions including showing more interest in five-year tenor than in recent months. “Everyone is getting their heads around the current backdrop and volatility seems to have subsided in some markets,” he says. “Investors are starting to look a bit longer, but they obviously need to be compensated in spread and yield.”

CPP Investments’ deal priced in line with guidance at 68 basis points over semi-quarterly swap. Equating to 112.5 basis points over the April 2027 Australian Commonwealth government bond (ACGB), leads say the deal provided relative value that resonated with investors familiar with the credit in other currencies as well as new accounts.

“Given this was CPP Investments’ first time issuing in Australian dollars, we introduced pricing to investors as an attractive spread to sovereign and semi-government paper,” Johnston tells KangaNews. With limited comparable recent issuance by SSAs, the deal team used liquid Australian dollar SSA and semi-government paper as well as US and Canadian dollar curves as the main pricing comparisons, he adds.