Spark joins firms tapping debt market, to sell up to $150 mln of seven-year bonds

Friday 20th November 2015

Spark New Zealand, the country's biggest telecommunications company, will raise as much as $150 million through a retail bond offer, joining a growing number of companies taking advantage of low interest rates to raise debt funding.

The Auckland based company's Spark Finance subsidiary will offer $100 million of unsecured, unsubordinated seven year bonds to institutional and retail investors, with oversubscriptions of up to $50 million. The bonds mature on March 10, 2023, and are expected to pay annual interest at a margin of 1-1.15 percentage points above the relevant swap rate. The seven year swap rate was recently at 3.33 percent, suggesting an interest rate of between 4.33 and 4.48 percent. The actual margin is expected to be announced on Dec. 4.

Spark has a credit rating of A- with Standard & Poor's. Auckland International Airport, which also has an A- rating, this month raised $100 million selling November 2022 bonds paying 4.28 percent annual interest, which was 95 basis points over the swap rate at the time.

Among the risks noted in Spark Finance's product disclosure statement was the regulatory environment, particularly the risk of Spark having to pay more to Chorus for access to the copper network. Spark noted that the final access price, due in December, is likely to be higher than what Spark currently pays. It also noted risks associated with current government and Commerce Commission reviews into telecommunications regulations, but said impact would be determined by the conclusions of those reviews.

Other companies that have turned to the debt market to raise cash as interest rates remain low include SkyCity Entertainment Group, Contact Energy and Infratil.

Last month, AMP Capital Investors (New Zealand)'s head of fixed income and managing director Grant Hassell predicted more firms would return to the debt market where they could raise money cheaply.

In September, Spark beefed up its bank funding lines with a new $100 million facility with Westpac New Zealand, having ditched a near-identical facility with that bank in March.

The company scaled back plans for capital expenditure in the current year to about $380 million from the $576 million it spent in the year ended June 30, which included a $158 million price tag for extra 700 megahertz radio spectrum.

Spark shares rose 2 percent to $3.31, and have increased 4.2 percent this year.

BusinessDesk.co.nz

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