International bid supports CPPIB’s second benchmark Kangaroo

CPPIB Capital’s second Kangaroo transaction benefited from a strong international bid, with investors flocking to the solid yield and the issuer’s commitment to being a programmatic Australian dollar issuer. The borrower says the domestic bid was also strong as local investors continue to grow comfortable with the Canadian issuer.

CPPIB Capital, the financing arm of the Canadian Pension Plan Investment Board, priced its latest Kangaroo transaction on 5 January 2023. The deal is the issuer’s second Kangaroo following a A$1 billion (US$691.8 million) five-year deal executed at 68 basis points over semi-quarterly swap on 23 August 2022.

The issuer was previously active in the Australian dollar EMTN market and reiterates that this is a core funding currency, and it is a natural fit alongside its portfolio of Australian assets and liabilities. This alignment attracted local investors, the issuer adds.

Deal pricing

Issuer name: CPPIB Capital
Issuer rating: AAA/Aaa
Issue rating: as issuer
Pricing date: 5 January 2023
Maturity date: 16 January 2026
Transaction type: senior-unsecured Kangaroo bond
Margin: 53bp/s-q swap
Margin to ACGB: 105.35bp/November 2025
Margin at launch: 55/s-q swap
Lead managers: Deutsche Bank, Nomura, RBC Capital Markets
Geographic distribution: see chart 1
Distribution by investor type: see chart 2

Source: CCPIB 11 January 2023

Source: CCPIB 11 January 2023

“We have a good following globally among central bank and official institutions, and other asset managers – they have helped drive the growth of our transactions. Domestic investors have also been attracted to our story as an owner of local assets. This resonated with a lot of Australian investors and drove the size of the first transaction, and this most recent deal is more of the same.”

“Because of the move in swap spreads, a lot of high-grade transactions are very close to 90-100 basis points over ACGBs. There are a handful of international investors with specific spread to ACGB targets that are taking note of this.”

“What we want to establish first and foremost are liquid benchmarks. We executed A$1 billion last August and now another A$1.3 billion in three-year tenor. We can facilitate duration if there is demand for it but we can easily find duration in other currencies if we need it, such as our recent 10-year Canadian dollar transaction.”

“We are aiming for one liquid benchmark a year and we are not targeting any particular term. We issued into a term that investors preferred, as evidenced by the size of the trade. We are not trying to find arbitrage in a particular term – we are committed to being a programmatic issuer with at least one benchmark a year.”

“If there is more demand later in the year for another transaction, it is certainly something we could look at.”