Learn more about which bonds are on the move with this weekly podcast. This week Elizabeth Moran, Stephen Mackie and Jake Koundakjian discuss last week's new issue from Lendlease and the update from Mackay Sugar.
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Director, Fixed Income Sales
Jake grew up in Ottawa, Canada, where he rose from a teenage bank teller to a portfolio manager overseeing more than $600 million in assets for the Bank of Nova Scotia. With over twenty years in asset management he moved to Australia seven years ago with his family.
Director – Fixed Income
Stephen Mackie is based in the firm's Brisbane office, managing investments for clients, ranging from individuals to institutions.
Stephen has over 25 years' experience in global markets, including his most recent role at QIC where he was a Director - Investment Specialist in the Global Multi-Asset team. Prior to this, he has held a variety of senior roles as a trader and portfolio manager with RBC Capital Markets, Citi, Kapstream Capital and the Commonwealth Bank.
Director – Education and Research
Elizabeth has been with FIIG for ten years and for much of that time has been a corporate and bank analyst. In recent years her passion for education has seen her role shift, to author/ edit FIIG’s “The Australian Guide to Fixed Income” and an online fixed income course for Financial Advisers. She continues to edit FIIG’s weekly newsletter, “The WIRE”.
In her role as Director of Education, Elizabeth has delivered presentations at conferences across Australia. Prior to joining FIIG, Elizabeth worked as an Editor/Analyst for Rapid Ratings, writing daily press releases for Bloomberg. Elizabeth spent five years in London, three working as a credit rating analyst for NatWest Markets.
[00:00:00] Welcome to another edition of BondCast. My name is Elizabeth Moran. I'm director of education and research here at FIIG with me I have Jack Koundakjian and Steve Mackie. Afternoon, I thought today we'd have a chat about Lendlease’s new 5.5 year and 10 year fixed rate bonds and Mackay Sugar.
So Lendlease was a very welcome new issue last week looking I think to refinance an existing loan. Is that right? That's correct. What did you think about the deal?
[00:00:37] Steve I like Lendlease always have, they are a very well run company probably Australia's best property company. The fact that they develop, construct and manage property, so they are not only a very solid builder, but they also manage a lot of their investments for clients. So they've been delivering value in the property sector for 30/40 years in Australia. It's a name that is blue chip as far as I'm concerned. The sectors they are in are the sectors we want to be in at this stage of the cycle. They have a pipeline that includes plenty of infrastructure, still plenty of defense spending, plenty of Federal government contracts. So yeah it's a name I like.
[00:01:19] Jake Yes it’s investment grade, good quality company. I'm very comfortable putting Lendlease into my portfolios. Yeah it's investment grade, good quality company with a $10bn market cap, just as Steve said, its Blue Chip and I don't think I have to worry too much about them paying me. But when it comes to investing in bonds, I do want to be paid of course and looking at the relative value of those offers it was a 5.5 years for a 4.25%pa. It was that kind of guidance and then the ten year at about 5.25% pa.
So these actually did price quite well compared to some of the comparables out there. I do like the Lendlease name. I was actually surprised to learn it was BBB minus I thought it'd be at least triple BBB flat, good quality investment grade I don't think I'd ever be too worried. With the 10 year I do think we do have to think about duration risk but as part of a diversified portfolio certainly good quality assets to have in there.
[00:02:12] Elizabeth So were you happy enough to get that extra 1 percent for you know four and a half years? That was reasonable?
[00:02:19] Steve I think so.
You know I think while people might be looking at the US market and seeing bond yields go up they can’t safely say that’s the way the market is in Australia at least for the next two years - rates are expected to be firmly on hold. So I think you know if we do have a pullback in the bond market it's a buying opportunity which is what we've seen. That's great when these sort of fixed duration bonds come on the market investors can dip their toe in some quality names and get that new issue premium.
[00:02:47] Jake It did look like it was like the 10 year was especially sticking out versus comparables, so they were giving us some extra juice to coax us to go longer. You know you don't put all your money into a 10 year bond but you can have some of it as part of a diversified portfolio. Certainly in a 10 year high quality issue that's going to pay you in my opinion, very low likelihood of any kind of issues from it.
[00:03:13] Elizabeth So yeah absolutely I saw the FIIG research piece relative value chart which showed the Lendlease 10 year bond to be sticking out above the curve and quite attractive and I know we participated in the primary market we did quite well although I believe our investors were scaled back.
[00:03:31] Jake Yep they sure were as all market participants would have been you know in the new issue business.
[00:03:38] You can never really guarantee any kind of fills because you just never know. But yeah I think our clients have got a pretty good allocation from what I'm hearing from others on the street and our FIIG investors probably higher than other houses.
[00:03:53] Elizabeth That's great news. And of course the bonds will be DirectBonded and available to clients to trade from $10,000 is that right?
[00:04:11] Jake I’m not certain yet so November 9th is settlement on their bonds and at that point they should be starting to trade in the secondary market in $10,000 increments.
[00:04:21] Elizabeth OK Fantastic let's move on to Mackay Sugar. So there was some positive news during the week about a prospective buyer.
[00:04:29] Jake Sure, so finally a ray of sunshine for the growers up there and Mackay Sugar. So Nordzucker are very large German concern looking to pick up 70 percent of the equity.
[00:04:42] So that is a positive development. Quite a few hoops to still jump through but its set off there. They must be progressed if they're willing to disclose where they are.
[00:04:53] So, subject to quite a few things like a I said.
Elizabeth Regulation, Foreign review board, shareholders, bondholders, bankers, a lot of parties.
Steve Not all bad news though. Like Jake was saying there is another potential hiccup there that we have to take into account is the EU whether or not the EU will accept Australian sugar imports.
[00:05:17] That's something to keep in mind is that the European sugar industry is quite heavily protected. They produce an inferior sugar compared to cane sugar, they produce beet sugar. So that is something that will also factor into the negotiations like Jake said the Foreign Investment Review Board as well is going to feature quite prominently.
00:05:39] But I think part of the covenants that are on our bonds are to make sure that we're speaking at the table with everybody else like the other debtors. And so it it's a ray of sunshine coming through. It's a light at the end of the tunnel potentially quite a few hoops to jump through.
[00:05:57] Elizabeth It's still uncertain but it's a good sign and it's a positive sign and our analysts are watching and talking to the company.
[00:06:09] So there've been a few other rays of sunshine as well. The price of the commodity has actually risen 30 percent in the last month or so. So that's a positive, the crushing season was going pretty well as well. So there have been other slight pluses but it's been mostly negative over the last few years. So it’s good to see.
[00:06:26]Steve I think the Mossman mill as well the recapitalisation plan if that's going ahead with Douglas Shire Council putting their hand up to help out as well. So I think there's positives all around, it's pretty key to Queensland agricultural infrastructure and the end of the day that's kind of Mackay’s backbone is the sugar industry.
[00:06:45] Elizabeth Well it does employ 900 people as well. Can't imagine 900 people looking for a job or an extra 900 up in that region.
Steve Plus a multiplier effect of those 900 people as well as it. Good point.
[00:06:55] Elizabeth Well I think that concludes another BondCast thanks very much for joining us if ever you have any comments or feedback please let us know. Thank you.