There are many ways for bond investors to consider relative value. Assessing companies’ cross currency issues is one of them. Here we consider three well known Australian companies’ bond issues in multiple currencies, and one US company. We take a deeper look at BHP Billiton’s issuance
Why do companies issue bonds in foreign currencies?
Large companies issue multiple bonds in many currencies. Sometimes, they’ll do it as a hedge as they have operations in that country, or to diversify funding sources. Another factor, particular to resource companies, is that most commodities are traded in USD, so by issuing bonds in the same currency, these companies have a liability which can be paid from their USD revenue.
Why do investors purchase foreign currency bonds?
There are many reasons investors might chose to invest in foreign currency bonds:
- For those that hold foreign currency and are looking for a higher return than they are getting on deposits.
- For known future expenses in a specific currency. For example, future purchases of business equipment. Some years ago we had a client who held Euros to purchase artwork and he locked in the currency when he thought the exchange rate was favourable.
- To diversify both currency and by issuer. The Australian corporate bond market is relatively small and under developed compared to other markets. There’s greater choice of companies, industries, maturity dates (tenor) and risk. For example according to the Bank of International Settlements as at 17 September 2017, the total US debt securities market was worth USD38.4 trillion compared to the Australian market at USD1.9 trillion.
- As a currency play, to benefit if the Australian dollar depreciates.
Sample four companies DirectBonds
See Table 1 below which shows four companies and bonds that are on our DirectBond lists, in multiple currencies.
Note: Only the Petrobras 2026 GBP bond meets our DirectBond filter (as at 30 September). We do not offer any recommendation or full coverage research on any of the DirectBonds listed below. More information on our new DirectBond process for non Australian dollar high yield bonds is available here and FAQs.
Petrobras is interesting. It has longer dated USD and GBP issues due January 2027 and December 2026, respectively. The pick up in yield in terms of the local currency is 0.65% for the USD, which is substantial despite the minimal extension in tenor. However, when looking at the AUD equivalent yield, the differential is minimal – the USD issue is at 6.50% versus the GBP at 6.59%. For the more technically minded, spreads are 216bps and 361bps, respectively.
While simple, the comparison helps determine relative value. The sizeable yield local currency differential may sway the investment decision, especially if you hold both currencies. However, there are many factors to consider before investing, for example, the size of the two issues, and likely liquidity, Petrobras’ debt maturity profile and views on the two currencies – you may have a preference for a specific currency, or belief in the trajectory of the currencies.
Here are the Factsheets for the Petrobras 2026 GBP bond and 2023 USD bond.
Similarly, Glencore has two bonds due to mature in 2019 – one in Australian dollars and the other in GBP, both have the same credit rating and the maturities are about seven months apart. The AUD has a YTM of 2.67% per annum, while the GBP, just 0.75% per annum. An Australian investor with AUD to invest would be unlikely to convert it to GBP for the low yield, unless they had a view that the AUD was going to fall relative to the GBP, or a future need for GBP such as a known expense late 2018 or early 2019. The spread for the AUD is 63bps and the GBP 31bps.
Here are the Factsheets for the Glencore 2019 AUD bond and 2019 GBP bond.
The TransAlta October 2029 bond, maturing in 12 years, is the only Canadian bond on our DirectBonds list, however, it does not pass our current Research filters. The Factsheet is available here.
A closer look at BHP
BHP Billiton, the ‘big Australian’, is a good example of a multinational company diversifying its funding sources and issuing bonds in multiple currencies. Bloomberg shows that BHP currently has on issue, 29 investible bonds in five currencies for a total outstanding of USD30.47bn. The largest currency of issue is in USD, with 46% or $14.04bn.
Euro issuance is second with 33.8% of the total. While the company is often referred to as the ‘big Australian’, it issues just 6.5% by value of its debt in Australian dollars.
Australia’s biggest companies that are regular, sizeable bond issuers may be reluctant to issue large volumes in the domestic market given its relatively small size and the risks associated with attempting to raise sizeable amounts in a small market.
Source: BHP Billiton annual report
| Currency | Initial issue amount | Type | Maturity date |
| AUD | 1,000,000
| Fixed | 18-Oct-17
|
| AUD | 1,000,000
| Fixed | 30-Mar-20
|
| CAD | 750,000
| Fixed | 15-May-23
|
USD
| 1,750,000
| Fixed | 1-Apr-19
|
| USD | 1,250,000
| Fixed | 21-Nov-21
|
| USD | 1,000,000 | Fixed | 24-Feb-22 |
| USD | 1,500,000 | Fixed | 30-Sep-24 |
| USD | 400,000 | Fixed | 1-Mar-26 |
| USD | 200,000 | Fixed | 1-Dec-26 |
| USD | 200,000 | Fixed | 15-May-33 |
| USD | 1,000,000 | Fixed | 24-Feb-42 |
| USD | 2,500,000 | Fixed | 30-Sep-43 |
| USD | 2,250,000 | Variable | 19-Oct-75 |
| USD | 2,250,000 | Variable | 19-Oct-75 |
| USD | 1,000,000 | Variable | 19-Oct-75 |
| USD | 1,000,000 | Variable | 19-Oct-75 |
| EUR | 1,250,000 | Fixed | 29-Nov-18 |
| EUR | 1,250,000 | Fixed | 25-Sep-20 |
| EUR | 650,000 | Fixed | 28-Oct-22 |
| EUR | 750,000 | Fixed | 29-May-24 |
| EUR | 750,000 | Fixed | 24-Sep-27 |
| EUR | 750,000 | Fixed | 29-Apr-30 |
| EUR | 750,000 | Fixed | 29-Apr-33 |
| EUR | 600,000 | Fixed | 28-Apr-20 |
| EUR | 1,250,000 | Variable | 22-Apr-76 |
| EUR | 750,000 | Variable | 22-Oct-79 |
| GBP | 750,000 | Fixed | 25-Sep-24 |
| GBP | 1,000,000 | Fixed | 25-Sep-42 |
| GBP | 600,000 | Variable | 22-Oct-77 |