(Bloomberg) -- Qantas Airways Ltd. has followed iPhone maker Apple Inc. in tapping into Australian dollar investors' hunger for the higher yields offered by longer-maturity debt with a sale of 10-year bonds, an unprecedented tenor for the airline in its local market.
The Sydney-based carrier's A$175 million ($134 million) deal, which was priced on Friday to yield 280 basis points more than the swap rate, came a day after a A$250 million sale of seven-year notes was sold at a spread of 258 basis points. The transactions are the first from Australia's largest airline since it regained its investment-grade credit scores at both S&P Global Ratings and Moody's Investors Service.
With yields around the world close to all-time lows even after the recent pullback in global debt markets, investors are increasingly looking for ways to generate additional returns and putting money to work for longer is one way to do that. Apple was one issuer who this year opted to extend its Aussie curve beyond the seven-year area that's tended to be a limit for many non-financial corporate borrowers. Borrowers such as New Zealand's Fonterra Co-Operative Group Ltd., French oil company Total SA and Melbourne Airport have also previously issued at that tenor.
“It's reinforcing that theme -- we saw a lot of issuers, certainly offshore issuers, accessing the longer part of the curve,” said Violeta Jovanoska, a Sydney-based director of debt capital markets at HSBC Holdings Plc, one of the banks that managed the Qantas transaction. “It's pleasing to see that domestically local issuers can access that part of the curve as well.”
Investor Demand
Jovanoska said Qantas received A$900 million of orders for the seven-year deal that it first chose to do, allowing it to tighten pricing from the initial level of 270 basis points that the notes were offered at. The strength of investor demand also enabled it to follow up with the 10-year offering, she said.
Prior to this week's deals, the longest outstanding Australian dollar note from Qantas was a May 2022 security that was issued back in 2014, when the carrier held speculative-grade credit scores. The airline has seen a turnaround in its fortunes since then, with an overhaul by Chief Executive Officer Alan Joyce and a drop in fuel prices both helping to return it to profitability.
The Qantas deals were managed by Australia & New Zealand Banking Group Ltd., Deutsche Bank AG and HSBC.
To contact the reporters on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net, Ruth Liew in Sydney at rliew6@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum
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