Singtel Optus raises $500 million with 10-year bond

Optus Finance (Optus) joined the list of Temasek-linked borrowers this year to tap the international capital markets, when it raised $500 million with a10-year bond last night.

After initial price guidance of a 160 basis point yield spread, the bonds were placed 10bp tighter at 150bp.

The lead managers, Citi, HSBC and J.P Morgan, launched and priced the deal rapidly, finding solid support from Asian investors in a strong market where Asian credits tightened by around 5bp yesterday. The deal was five times subscribed and bonds were distributed to more than 150 accounts.

It's a non-call issue and pays a 4.625% semi-annual coupon. It was re-offered to investors at 99.739 to yield 4.658% to a maturity date of October 15, 2019.

Brayan Lai, credit analyst at French investment bank Calyon, said investors will have analysed the issue from one of two perspectives. First, many Asian accounts would probably have compared it with other recent Temasek-linked bonds, such as the 10-year issues from ST Engineering (STE) and port operator PSA International, as well as with illiquid regional telecom bonds, for instance Telekom Malaysia and Korea Telecom. Yesterday, STE and PSA were both bid at around 125bp over US Treasury yields. On this basis, Lai reckoned the price on the Optus issue was "just fair to expensive".

Second, European accounts were likely to have compared the deal with high-grade European telecom credits. And, he said, "picking a few on-the-run high-grade credits [such as Telefonica and Vodafone five- to 10-year bonds] and curving it, now it begins to look cheap, by at least 30bp-40bp, with the curve giving roughly 3bp extra each month".

Optus's offering, which was issued from the company's euro medium-term note programme, was a Reg-S deal, meaning it was not available to onshore US investors. It was guaranteed by Singtel Optus, a communications services provider in Australia, based in Sydney and the country's number two in mobile, broadband and fixed-line operations. Singtel Optus is wholly owned by Singapore Telecommunications (Singtel), which is is 55%-owned by Singapore government-controlled Temasek. Singtel is rated Aa2 by Moody's and A+ by Standard & Poor's.

Optus was apparently very hands-on when it came to the final allocation: Asian investors bought 65% of the deal, and 35% was placed in Europe and the Middle East. Fund managers 64% of the issue, commercial banks bought 16%, private banks 10%, insurance companies 8% and others 2%.

The notes are rated Aa3 by Moody's and a notch lower at A+ by Standard and Poor's, and will be listed on the Singapore stock exchange.

"The rating reflects Optus's solid single-A stand-alone credit profile, combined with additional credit support implied through its 100%-ownership by and close operational linkages with its parent -- Singapore Telecommunications," said Ian Lewis, a Moody's vice-president. He pointed to Optus's low financial leverage, integrated business model, sustainable position in the Australian telecoms sector and limited regulatory risk.

Lewis also reckoned that Singtel would support Optus "in a distress situation, due to its strategic position", which affords Singtel additional revenue diversity, exposure to a large stable telecoms market and meaningful contribution to the group's consolidated earnings and cash flows.

An analyst at a Hong Kong investment bank suggested that future regulatory changes in the Australian market should benefit Optus more than the current main incumbent Telstra. He also pointed out that Optus has become a net-creditor to Singtel via intercompany loans.