Tuesday 17 March 2015 by Lincoln Tragardh Week in review

From the Trading Desk

This week: Aussie unemployment; RBA minutes; flows from last week; CBL Insurance update; Fortescue bond buyback and refinance update; and two AXA USD “old style” capital securities and Downer AUD 2022 fixed rate bond added as new DirectBonds (wholesale investors only).

Economic wrap

It was a very quiet week locally, with both our bond and equity markets taking the lead from the US.

Domestically, unemployment figures were released last week. The unemployment rate fell 0.1% to 6.3%, against expectations of a stable reading. The change was aided by an unanticipated 0.2% drop in the participation rate to 64.6%. Actual employment numbers rose by 15,600, against surveys for a 15,000 job increase.

Yesterday, the RBA released the minutes from its monetary policy meeting earlier in the month. In the minutes, the RBA justifies leaving rates on hold in March in order to allow effects of the previous rate cut in February to take hold and to wait for additional data before assessing their next move. Economic growth was below trend, and while the lower AUD has been supportive, the RBA suggests it is still above what they see as fundamental value. There is some concern over strong growth in the housing market, though this is isolated to Sydney and Melbourne. On the whole, the RBA sees a case for further easing but will await further data before making any commitment.

Australian government bonds were strong, following US Treasuries, with yields down for the week. Our 5 year was down 10 basis points to 2.00%, while the 10 year was down 20 basis points to 2.55%. Bond markets, however, will be paying close attention to commentary coming out of the US Federal Reserve’s meeting on Wednesday.

The AUD devalued slightly, falling almost 1c against the US dollar. Our dollar started the week at 77.14 US cents and closed out at 76.37 US cents.


Last week we debuted a new USD direct bond, Newcastle Coal Infrastructure Group (NCIG). Demand for this line was extremely strong and we do have some demand overhang after the initial supply was exhausted. This is a tightly held issue with supply that ebbs and flows, so some patience will be needed before we are able to secure our next supply source.

FIIG also launched a new primary bond transaction this week, a five year floating rate note (FRN) issued by Dicker Data Limited, paying 3m BBSW +4.40% (see the article New issue - Dicker Data to issue $40m floating rate notes). With clients switching into this new issue, as well as last week’s NCIG offer, a lot of supply in AUD credits has come our way.

Please call your dealer for an updated list on what we have available.

CBL Insurance Group releases strong FY14 results and considers capital management options (by Justin McCarthy)

Last Friday, CBL Insurance Group released its full year results to 31 December 2014 (FY14), demonstrating continued growth in revenue and operating profit.

For FY14 total premium income was NZ$242m, up 14% on the previous year, resulting in a 41% increase in (unaudited) operating profit to $36m. Upon release of the annual report, we will conduct a detailed update on the financials, however, the preliminary numbers appear strong and in-line with expectations set out at the time of the A$55m bond issue last year.

In releasing its results, CBL stated that “as part of CBL’s ongoing revenue and capital growth plans it had appointed Bancorp Corporate Finance and the international investment banking group UBS to assess its options”, which is interpreted as meaning the company is looking at ways of optimising and/or raising capital, which presumably would include a possible listing. We will monitor this in coming months and advise of any developments.

Fortescue bond buyback (by Alen Golubovic)

Fortescue has announced that it will launch a US$2.5bn senior secured bond to finance the repurchase of its full existing 2017 and 2018 senior unsecured bonds and up to US$700m of its 2019 senior unsecured bonds. For further details see the article Update on Fortescue bond buyback from this week’s WIRE.

Emeco announces purchase of Rentco (by Alen Golubovic)

Emeco has announced that it has agreed to acquire national truck rental business Rentco based on a minimum equity value of $53m (enterprise value of $82m). Further details on the proposed acquisition can be found here.

New USD DirectBonds – AXA 8.6% fixed rate 2030 bullet subordinated bond and AXA 6.379% fixed rate Tier 1 perpetual (callable December 2036)

Earlier this week, two USD denominated AXA SA (AXA) bonds were added to the DirectBonds list.

Both securities are “old style” capital securities issued pre-GFC and hence are our preferred structure. As they were issued pre-GFC they do not contain the non-viability triggers that are in more recent bank and insurance capital security issues.

The first one is a bullet (i.e. no early call) subordinated bond with a maturity date of 15 December 2030. This bond is paying a semi-annual fixed coupon of 8.6% p.a. and is currently indicatively offered at a yield to maturity (YTM) of 4.60%. The bond is available to wholesale investors only in minimum face value parcel sizes of USD$10,000.

The factsheet for this bond can be viewed by clicking here (for wholesale investors only, login required).

The second is a Tier 1 perpetual security with a first call date of 14 December 2036. This USD security pays a semi-annual fixed coupon of 6.379% until December 2036 and if not called then reverts to floating, paying a quarterly coupon of 3m US$ Libor +2.256%. The structure is very similar to the existing AUD fixed rate AXA Tier 1 securities, including a step-up margin if not called.

With a longer expected maturity date (of 2036) and additional subordination, these securities are currently indicatively offered at a yield to call of 5.20%. The bond is available to wholesale investors only in minimum face value parcel sizes of USD$100,000

The factsheet for the Tier 1 perpetual security can be viewed by clicking here (for wholesale investors only, login required).

New AUD DirectBond – Downer Group Finance Pty Limited 4.50% fixed rate 2022 bond

A new AUD DirectBond was also added to the list in the past week. The Downer Group Finance Pty Limited 4.50% fixed rate bond with a maturity date of 11 March 2022 is now available to wholesale investors only in minimum face value parcel sizes of $10,000. It is currently indicative offered at a YTM of 4.25%.

The factsheet for the Downer Group Finance Pty Limited 4.50% fixed rate bond can be viewed by wholesale investors here (login required).

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. For more information, please call your FIIG representative or our general line 1800 01 01 81.


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