September 20, 2019 / 9:34 AM / 2 months ago

Woolworths shops for long tenors

* Loans: Australian borrowers tap Asian lenders as pricing dips

By Mariko Ishikawa

SYDNEY, Sept 20 (LPC) - Supermarket chain Woolworths Group launched a A$2bn (US$1.36bn) multi-tranche loan last week, adding to a growing list of Australian borrowers tapping the yield-hungry Asian bank market to lock in long-term, low-cost funding.

The loan for Woolworths includes six and seven-year tenors – the longest for the borrower to date – and could serve as a bellwether for lenders’ appetite amid a dearth of deals and downward pressure on pricing.

Typically, loans for Australian corporate borrowers are between three and five years.

So far this year Australian companies have raised a total of US$16.92bn of syndicated loans with tenors of six years or longer, according to Refinitiv LPC data. Full-year volume for such deals surged to US$20.26bn in 2018, the most since 2014.

This year, pricing for Aussie loans has been under downward pressure, with five-year margins averaging 154bp, the lowest since 2014. That drop is driven in part by strong liquidity among banks and the 28.5% fall in deal flow to US$44.96bn year to date compared with the same period last year, according to Refinitiv LPC data.

ON THE ROAD

Woolworths will hold roadshows this week in Singapore and Taipei, looking to lure Asian lenders that have been enthusiastic participants in recent Australian loans with long tenors.

In August, Charter Hall Prime Office Fund, a unit of Australian integrated property company Charter Hall Group, made an impressive debut in the syndicated loan market with a A$500m seven-year loan. Of the 19 lenders joining in general syndication, six were from China and eight from Taiwan, taking a combined 44% of the deal.

A month earlier, Australian property developer Walker extended a A$1.5bn five-year loan agreed in June 2018 by a year and also added a seven-year tranche. All but one of the 24 existing lenders on the 2018 loan, several of which were from Asia, rolled over their commitments.

In June, electricity network AusGrid completed a A$1.65bn deal with seven and 10-year maturities. Thirty-seven banks and institutions participated, including 30 from Asia. The same month a A$400m 5.5 and seven-year loan for QIC Finance (Property Fund) attracted 11 Asian participants.

TIGHTER PRICING

Woolworths has not borrowed in the loan market since closing a A$500m three-year financing in June 2017. The latest financing will refinance two separate multi-tranche syndicated loans of A$2bn and A$700m completed in April and November 2016, respectively. Both those loans from 2016 had met with a good response from Asian lenders.

The new loan offers opening interest margins of 105bp, 115bp, 125bp and 140bp over BBSY on the four, five, six and seven-year tranches based on its BBB rating from S&P.

That is well inside the supermarket chain’s 2016 loans and in line with the pricing trend this year. The A$700m three and four-year loan from November 2016 pays margins of 140bp and 160bp respectively, while the A$2bn loan from April that year pays spreads of 130bp and 160bp for three and 5.5 years respectively.

Woolworths has recovered after a tough 2016, during which it suffered its first loss in 23 years and suffered a one-notch downgrade to its current ratings of Baa2/BBB (Moody’s/S&P). The margin on the April 2016 loan stepped up as a result of the downgrades. For the 12 months ended June 30 this year, net profits, excluding one-off items, rose to A$1.75bn, a 9% rise over the A$1.61bn recorded a year earlier.

In April this year, Woolworths issued a A$400m 2.85% five-year debut green bond at a reoffer yield of 2.8575%, equivalent to asset swaps plus 120bp, after attracting over A$2bn in orders.

Reporting Mariko Ishikawa; editing by Prakash Chakravarti and Steve Garton

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