SPI (Australia) Assets Pty Limited (SPIAA), a wholly-owned unit of Singapore Power, has more than doubled a five-year bond issue to A$500 million ($612 million) and priced it at 185 bps. 

The bond sale, initially launched with a minimum size of A$200 million at 180-185 bps, will help refinance bank loans. 

 

SPIAA, known as Jemena to differentiate from sister company SP AusNet which is also owned by state energy firm Singapore Power, is rated A-minus by S&P and A3 by Moody’s. 

 

Two investors who participated in the offer praised the credit quality of SPIIA, which operates regulated assets. 

 

They also described the margin of 185 basis points as good value for investors, a rather rare attribute in Australia where corporate bonds, or bonds sold by non-financial borrowers, are a scarce commodity and tightly held by investors. 

 

Such bonds are usually well sought-after in the secondary market but hard to find. 

 

Just 5% of this year’s local bond issuance comes from corporate borrowers, data from consultancy firm ADCM shows.  Pricing comparables proved somewhat challenging given the limited number of borrowers who have recently sold Australian dollar bonds with the same maturity and ratings. 

 

Moreover, the notorious illiquidity of such bonds adds another layer of difficulty. 

 

The most often-quoted comparable was SP AusNet (SPN.AX), which sold 2017 bonds in March at 160 bps over swap. However, investors said margins in the secondary market varied notably, with Yieldbroker quoting 165 bps (AUSPE0917=YBAU) and others 173 bps. 

 

Still, investors said the 12-20 basis points of SPIAA’s bonds over SP AusNet was very reasonable given SPIAA's offer was two years shorter. 

 

A fund manager said the credit was even stronger than SP AusNet because SPIAA is 100% owned by Singapore Power (SP). SP AusNet is 51% owned by SP. 

 

Two other asset managers declined to participate because they did not think the covenants package was strong enough, citing an insufficient step-up margin of 25 bps in case of a ratings downgrade. 

 

"It should be something that would hurt, like 100 bps," a fund manager said. 

 

SPIAA’s issue was oversubscribed despite its doubling in size at the final margin of 185 bps. 

 

It follows a rash of raising this year by Australian utilities keen to refinance maturing debt. 

 

Australian utilities have more than A$13 billion of bonds and loans to refinance between now and the end of 2011, Standard & Poor’s noted in a report in May. 

 

Among large loan refinancings in the coming year, S&P highlighted SPIAA’s A$2.65 billion and its sister company SP AusNet's A$1.2 billion facilities.