August 4, 2017 / 8:52 AM / 8 months ago

Verizon stuns Kangaroo market with debut bond print Down Under

SYDNEY, Aug 4 (IFR) - Verizon Communications (Baa1/BBB+/A–) has reopened Australia’s Kangaroo bond market for global corporate issuers with a stunning four-tranche print that can only encourage further issuance from offshore blue chips.

The US telecom giant smashed expectations with a A$2.2 billion ($1.76 billion) four-tranche issue. It is the first Kangaroo bond from a corporate issuer this year and the second-biggest corporate bond in the Australian dollar market, just shy of Apple’s A$2.25 billion three-tranche Kangaroo debut in August 2015.

Verizon priced well inside guidance levels and in line with its US dollar curve, said market sources.

The A$500 million 5.5-year floating-rate note priced 122 basis points wide of three-month BBSW, 8bp below 130bp area guidance, while the A$550 million 3.5 percent fixed-rated February 2023s priced at asset swaps plus 122bp.

The A$450 million 4.05 percent seven-year and A$700m 4.5 percent 10-year notes priced 157bp and 185b over asset swaps, versus respective guidance in the 160bp area and 190bp area.

Deutsche Bank and JP Morgan were joint lead managers for the trade.

Verizon’s jumbo financing again highlights the pent-up demand for corporate credit in Australia’s bank-dominated local market. Local corporate bond sales have jumped to A$8 billion this year versus just A$1.6 billion in same period in 2016 and A$5.1 billion in the whole of last year.

Apple revealed the Australian market’s potential as a global funding alternative in 2015 with its inaugural A$2.25 billion four-year and seven-year debut in August 2015 that smashed the previous A$500 million record for corporate Kangaroos. US chipmaker Intel followed with a A$800 million sale of four and seven-year Kangaroos in November 2015.

In June 2016, Coca-Cola raised A$1 billion from a four and eight-year issuance, the same month Apple returned with a A$1.425 billion four-year, 7.6-year and 10-year offering.

Three other corporate Kangaroos last year raised between A$175 million and A$350 million from single tranche trades.

US companies have issued bonds overseas in recent years to avoid high US corporate tax rates levied on repatriated overseas profits.

Companies have chosen to keep profits offshore, issuing bonds in foreign currencies and swapping proceeds back to US dollars to help pay dividends and finance stock buybacks.

US motorcycle maker Harley-Davidson, rated A3/A– (Moody’s/S&P), could follow Verizon having held investor meetings in Australia and Singapore in March for a possible Kangaroo debut.

Verizon has had a busy week in the Asian capital markets. It also priced a $950 million 5.15 percent 33-year non-call five Formosa bond in the Taiwanese market. Citigroup and BNP Paribas Taipei were local underwriters while Citigroup and Goldman Sachs were structuring agents on the trade.

Verizon is a huge bond issuer with over $116 billion-equivalent in bonds outstanding, the vast majority of which is in US dollars. This total includes $3 billion of 16-year notes sold on Tuesday as part of a liability management exercise to take out a number of high-coupon legacy bonds as well as other short-term debt. (Reporting by John Weavers; editing by Steve Garton and Daniel Stanton)

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