Corporates chase South Canterbury money

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It's probably no coincidence there's a rush of corporate debt issues hitting the market just as South Canterbury Finance (SCF) investors are about to receive their cheques.

Wednesday, October 20th 2010, 10:31PM 1 Comment

by Jenny Ruth

Casino operator Sky City Entertainment Group is the latest, offering to sell up to $50 million of its capital notes held as treasury stock.

Sky acquired the notes earlier this year when it rolled over a previous capital note issue for another five years while giving investors the choice of having them redeemed. At August 19, it was holding just under 103 million notes as treasury stock.

The notes, maturing on May 15, 2015 are being offered at 7.25% per annum, the same rate the listed notes last traded at on NZX.

Trans Tasman food giant Goodman Fielder is seeking to sell up to $250 million in bonds maturing May 16, 2016 at a minimum 7.25% interest rate in an offer opening next Monday.

Trans Tasman newspaper publisher APN News & Media is also proposing to sell up to $200 million of bonds maturing in about five years. While it hasn't indicated any interest rate, market sources say it will be above 7%.

So would the SCF investors be interested in any of these? Since all three issuers are solid corporates with reasonable balance sheets owning well-known brands, chances are all will sell well, even without SCF money.

The Greenstone Energy Finance issue which closed last month raised $147 million, $47 million of that in over-subscriptions.

Greenstone, the joint venture between Infratil and the Guardians of New Zealand Superannuation which owns the former Shell petrol stations, 17.1% of the New Zealand Refining Company and 25% of Fly Buys, sold the bonds at 7.35% and they last traded at 7.1%

So which is best of the latest three offerings? Sky City is the only company of the three with a credit rating, just scraping into investment grade with "BBB-" from Standard & Poor's, but the notes themselves aren't rated.

On the downside, Sky's notes are subordinated, ranking behind the company's banks whereas both the Goodman and APN issues will rank equally with the banks. If one has to choose between a subordinated or senior bond, both bearing the same interest rate, the senior bond ought to be more attractive.

Then again, the "AAA"-rated Rabobank has a 6.7% five-year term deposit on offer. While investors in all three of these corporate offerings will have the benefit of being able to sell on market before maturity, are the interest rates being offered compensating them adequately for the additional risks?

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