Borrower of the week: HKAA

Raymond Lai, CFO of the Hong Kong Airport Authority, talks about the company''s borrowing strategy

You completed your first international bond offering last week. Why do you need to raise funds now?

It's for our general corporate purposes. We also have some refinancing requirements coming up and an acquisition we made recently carries fixed US dollar income, so this financing combines certain objectives for us, matching income sources and we also wanted to generally lengthen the debt maturity and tap a new source of funding in international investors. We've done the local retail and institutional market already, and also the bank market in Hong Kong, so this represents new source of funding for us.

How do you expect the bond to perform in the secondary market?

The first couple of days it was trading between 71-75bp, so it has tightened a bit. Treasuries have come down quite a bit so it's now trading at around 80-85bp.

There was plenty of pent-up demand for this deal. Why didn't you raise the size of the offering?

We continue to take a very prudent approach, only borrowing what we need rather than just taking on more than what's required because of the availability of funds.

The deal was originally postponed due to SARS. That presumably hit your business quite hard - how important was it to get this deal away?

At one point, because of SARS, our traffic was down and so we decided not to go for the bond. Inevitably we would have to present the Airport Authority story, which would have meant everyone asking about the effect of SARS on our business, so we postponed it. Subsequently our traffic, and our business generally, recovered much better than expected, to the point that we are now back to pre-SARS levels. So we took the decision that now would be a good time to show the world that Hong Kong has taken-off again, combined with the other objectives of promoting Hong Kong generally and promoting the airport, which is anyway a proxy for the Hong Kong economy.

Do you have any plans to come back to the bond market in the future?

Not for the time being but we do have a lot of new projects we are planning and are in various stages of implementing, and when those come to completion I think we will come to the market again, but along the way we will be very prudent and concentrate on projects that contribute value and growth.

What are your attractions as a credit?

In general we are a pretty resilient utility-type company with lots of very stable earnings, but at the same time we have very strong growth because of our hinterland; our catchment area - the Pearl River Delta and southern China is the fastest growing area in the region. So I think that we do combine that utility nature - a resilient type of cash inflow - plus some very good prospects for continuous growth.

How much debt do you now have outstanding?

We are at a very prudent level. In total debt term it would be in the region of $1.1 billion. I think that with some repayment our net debt we would be hovering around this figure for some time, against our equity position of HK$36.6 billion, which is equivalent to around $4.5 billion. So this is a pretty conservative leverage.

When will the Authority be privatized?

The financial secretary has announced the plans to move forward with the feasbility study of partially privatizing the Airport Authority, so we are working on it. The timing and ultimate decision is the sole responsibility of our shareholder [the government], but we estimate the financial secretary would like to us to have gone through legal process of corporatizing and getting our ordinance changed in Legco some time before next July. Hopefully, from that point onwards we can go through the due diligence process and then wait for the right timing, but these are the decisions of the government.