One of the Philippines’ most diversified conglomerates, Ayala Corporation, made a big comeback to the offshore debt market after a long hiatus as it priced on September 6 a US$400 million fixed-for-life perpetual offering.
The Reg S non-call five year deal was priced at par with a similar coupon and re-offer yield of 5.125%. This was at the tight end of the final price guidance of between 5.125% and 5.25%, and 50bp inside of the initial guidance of 5.625% area. The bonds performed in the secondary market and were quoted at 101.15 in the morning of September 7.
The transaction represented the first US dollar corporate bond issuance out of the Philippines this year as the local issuers largely rely on domestic liquidity, leading to scarcity of new offshore bond supply from this market.
In executing the transaction, Ayala held a roadshow in Hong Kong and Singapore earlier in the week. They were still completing some investor meetings with accounts in Singapore when they decided to go ahead with the trade on September 6.
With Ayala having no outstanding bonds in the market, there was a price discovery process associated with this transaction, as a banker familiar with the deal points out. Investors used different matrices in looking at the credit, including Philippine corporate bonds, to get a sense where the pricing should be.
Also used as comparables were the other unrated fixed-for-life perpetuals such as those for Nan Fung International Holdings and New World Development, and other rated fixed-for-life as well.
Another matrix used, the banker adds, was to look at where the sovereign with its long-dated bonds was trading and what effectively was the spread differential required for a fixed-for-life instrument after taking into account the credit differential between the sovereign and a credit like Ayala.
“There were a lot of angles that investors looked at, which pointed to fair value in the context of 5.25% to 5.50%,” the banker says. “So I will put the new issue concession in the negative since the deal was priced at 5.125%. The fact that Ayala is rare issuer in the offshore debt market and has been absent for a while, helped drive the bid for this credit.”
The transaction, issued through AYC Finance Limited and guaranteed by Ayala, garnered an order book of over US$2.5 billion from 145 accounts. The bulk of the bonds were distributed in Asia at 90%, including 19% in the Philippines, while the remaining 10% was sold in Europe.
By type of investors, fund and asset managers accounted for 67%, banks 12%, insurance companies, pension funds and corporates 7%, and private banks and other investors 14%.
In opting for a fixed-for-life perpetual in its market comeback, Ayala wants to have the flexibility to call the instrument within five years and be able to refinance at better market rate going forward, the banker says. “The deal is treated as debt and does not get equity treatment, so the rationale for Ayala is to have that flexibility in terms of their future funding plans.”
Proceeds from the transaction will be to refinance AYC Finance’s maturing US dollar obligations and to fund Ayala’s investments or its offshore subsidiaries.
HSBC was the sole global coordinator for the transaction as well as a joint bookrunner along with Deutsche Bank and J.P. Morgan. BPI Capital Corporation and China Bank Capital Corporation acted as the domestic lead managers.
Ayala’s highly diversified businesses include real estate, banking, telecom, water, industrial technologies, power generation and infrastructure, including social infrastructure such as health care and education.
In the first half of 2017, net income rose 9% to 15.1 billion pesos (US$296 million) year-on-year underpinned by the solid contribution from its real estate and power generation businesses. Balance sheet remains at a comfortable level with cash at the parent level amounting to 12.1 billion pesos, while net debt stood at 64.4 billion pesos. Net debt-to-equity ratio for the period was 0.67 at the consolidated level and 0.60 at the parent level.
Photo: Ayala.com.ph
