Curve building activity draws back semis with new deals
- Thursday, 24 October 2013
Treasury Corporation of Victoria (TCV) and Western Australia Treasury Corporation (WATC) both priced public deals in quick succession on October 21 and 22, with significant oversubscription. Both issuers cite the desire to build a curve and strong investor demand for the decision to return to the market. But they add that further issuance depends on how market conditions develop.
TCV was first to price its new A$775 million (US$745.2 million) four-year domestic syndicated deal with pricing of 45.5 basis points over the July 2017 Australian government bond (ACGB). WATC followed closely the next day with a new 12-year line – the A$550 million deal priced at 105 basis points over the reference ACGB.
Justin Lofting, general manager, treasury at TCV in Melbourne, tells KangaNews the borrower's A$775 million deal comprised 20 accounts. He adds that 14 per cent was sold offshore and the remainder went to domestic investors. In terms of investor type, 75 per cent comprised bank treasuries, 12 per cent asset managers, 10 per cent regional governments and the remaining 3 per cent was sold to central banks.
Following the deal the borrower consolidated around A$800 million of funds out of its 2016 maturity into the new 2017 line – the total now being A$1.598 billion outstanding in the new bond.
Lofting adds that the book was oversubscribed to the tune of A$1.9 billion, A$1.5 billion at the clearing level. As a result, there was significant scaling. "The investors we thought would participate did so the deal was attractive to bank balance sheets and some small real-money and offshore investors," he comments.
Similarly, John Collins, chief executive officer at WATC in Perth, tells KangaNews the book for the syndicated launch of the treasury corporation's new July 2025 benchmark bond was also oversubscribed at A$1.5 billion. In total, approximately 25 accounts participated in the final book, with the majority - 91 per cent – taken up by domestic investors. Roughly 25 per cent was sold to bank balance sheets and 55 per cent went to fund managers both off- and onshore.
Curve building
Both issuers tell KangaNews they were drawn to the market by a need to build a curve and in response to investor demand. TCV's Lofting says funding the borrowing requirement was behind the issuer's decision to issue a new line. "We have a client borrowing requirement in the shorter end of the curve and also saw a good opportunity to establish a 2017 line to sit alongside the 2016 line – this gives TCV more flexibility with managing our yield curve going forward," he reveals.
For WATC, identifying demand following the Standard & Poor's long-term issuer ratings downgrade to AA+ from AAA on September 18 was more tricky. Its latest issue closely follows the issuer's three-year A$750 million floating-rate deal on October 16. Collins tells KangaNews the earlier deal gave the opportunity for the borrower to see how investors would respond to the borrower under its new rating. He comments: "We have wanted to put a longer-dated issue out for a while and found an opportunity when the US debt ceiling situation seemed to resolve itself favourably. We were ready to go fairly quickly right after that."
The deal is WATC's first benchmark issue with a maturity beyond 10 years – historically the treasury corporation has created a smaller line with a long tenor and then built it over time. Collins explains that underlying client demand was behind the decision to issue this type of deal. "WATC has had growing demand for that part of the curve for some time so it was just a matter of reaching a critical mass to execute the issue. This gives us a point on the curve which is longer and which we can tap if required."
Pipeline
Queensland Treasury Corporation (QTC), WATC and TCV have all issued syndicated deals in the past month and while other semis may follow suit, Peter Dalton, Sydney-based head of syndicate at Westpac Institutional Bank (Westpac) – joint lead manager on the latest TCV trade, with National Australia Bank, and on the WATC 2025s with UBS – tells KangaNews: "This ultimately depends on specific client demand – if the semi governments do not have end-user client requirements they will not come to the market in syndicated or other form."
TCV is the state government issuer closest to completing its A$6.7 billion 2013/14 issuance programme. Lofting says: "TCV is significantly ahead of where it needs to be with around 60 per cent of the programme completed. This will allow us to be more selective going forward." He adds: "TCV has a smaller funding requirement towards the end of the year but if it looks like the market is offering longer-term debt opportunities we may look at those."
For WATC, Collins points out that although there are no immediate funding plans in place, the issuer will continue to issue in floating-rate format and tap into its existing lines over time. He says: "The next issue we would anticipate would be in the mid-curve – but when and how much depends on client demand and market conditions."
