Last week, Melbourne Airport issued EUR350m of 10 year bonds at the extraordinarily low coupon of 1.75% per annum, equivalent to an issue spread of just 75 basis points (100 basis points = 1 per cent) over the base Euro swap rate
While this is an excellent outcome for Melbourne Airport, because it is an extremely low cost of debt financing whichever way you look at it, a 1.75% p.a. coupon is a very low return for investors in the bond. Note that Melbourne Airport is only the second largest airport in Australia, behind Sydney Airport.
FIIG investors can access much higher yields than this, as well as protection from CPI increases, through the Sydney Airport capital indexed bonds. Sydney Airport is Australia’s international gateway and primary airport. FIIG currently offers the 2020 and 2030 Sydney Airport bonds which are paying the rates below:
- The 2020 capital indexed bond is currently indicatively offered at a yield to maturity of 5.57%, which is equal to a trading margin of 220 basis points
- The 2030 capital indexed bond is currently indicatively offered at a yield to maturity of 6.34%, which is equal to a trading margin of 232 basis points
While both issuers have an investment grade rating, Melbourne Airport has a higher credit rating than Sydney Airport by two notches, and as such is considered a lower credit risk than Sydney Airport. This is partly due to Sydney Airport having higher financial leverage than Melbourne Airport. However, with yields three to four times greater than the return on the Melbourne Airport bond, as well as inflation protection, the Sydney Airport 2020 and 2030 capital indexed bonds still show good relative value.
All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.