Timely Fonterra sale of six-year bonds draws oversubscriptions

Fonterra Cooperative Group [NZX: FCG] attracted $100 million of oversubscriptions for its 2021 bonds in a sale that benefited from the maturity of $800 million of existing debt at the world's biggest dairy exporter and a large government bond maturity that pushed out the duration of a key benchmark index.

Fonterra sold a total $350 million of the bonds, which pay annual interest of 4.33 percent, or 75 basis points over the comparable swap rate. The debt will be issued on April 20 and is to be quoted on the NZX Debt Market. The funds raised are to be used for general corporate purposes, it said.

"They had $800 million mature last month, so a lot of investors in that bond wanted to find something to put that money into," said Mark Brown, director, fixed interest portfolio management, at Harbour Asset Management. "Fund managers were happy to go back into the bond," he said, adding that its pricing was in line with existing Fonterra bonds trading in the secondary market.

Also helping demand was the maturity yesterday of some $7.7 billion of April 2015 government bonds, which had the effect of extending the duration of a benchmark index most fund managers use, which created an appetite for longer-dated debt from investors who closely followed the index, he said.

Investors have been relatively spoiled for choice with debt issues this year, although some were directed at the wholesale market or didn't have a public pool. ANZ Bank New Zealand sold $500 million of mandatory convertible, perpetual notes last month including $250 million of oversubscriptions. Spark New Zealand sold $100 million on 2022 notes with a coupon of 4.5 percent last month, while the NZ Local Government Funding Agency has issued some $470 million across a range of maturities this year.

Brown said credit in New Zealand is still relatively expensive and a more favourable yield was available from buying Fonterra bonds issued in Australian dollars.

Grant Hassell, head of fixed income at AMP Capital New Zealand, said there will be more retail investors looking for new places to park their funds this year. Almost $3 billion of high-coupon retail corporate bonds was set to mature this year with a weighted average coupon of 7 percent, and little prospect of finding comparable returns given falling interest rates.

(BusinessDesk)