Auckland International Airport Unsecured Unsubordinated Bonds
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Auckland International Airport
Unsecured Unsubordinated Bonds
19 May 2014
The Investment Statement sets out the terms of this fixed rate, unsecured, unsubordinated bond offer and
should be read fully before you make a decision to invest. A copy is available from your advisor on request.
Important Notice and Disclosures: This information is not a recommendation to purchase or subscribe for fixed
rate, unsecured, unsubordinated bonds to be issued by Auckland International Airport Limited (“Bonds”) and
does not constitute personalised financial advice under the Financial Advisers Act 2008. Before making an
investment decision, investors must consider whether they have sufficient information also having regard to
their particular investment needs, objectives, level of acceptable risk and financial circumstances and, if
necessary, seek financial advice. If you require personalised financial advice, there is a process to go through
before that can be provided to you. First NZ Capital is writing to you about this offer on its own behalf. The
Bonds are not intended to be offered for sale or subscription outside of New Zealand. A disclosure statement is
available from your First NZ Capital adviser on request, free of charge. If you are a client of First NZ Capital that
receives a personalised financial adviser service, a Secondary Disclosure Statement that includes details of the
types of fees paid to First NZ Capital and the remuneration of your adviser will have previously been provided to
you by your adviser.
Investment View - Executive Summary
Currently there are other debt securities which offer better relative value than the Auckland International
Airport (AIA) bonds. However, they do offer a sound A- credit rating from Standard and Poor’s, are
unsubordinated (i.e. senior debt obligations), and provide a good opportunity to get diversification into
investors’ debt security portfolios given the preponderance of bank securities on issue.
Compared to the existing AIA bonds, the new AIA130 bond appears to offer modestly better fair value at the
indicative spread of 0.9% over the current swap interest rate which would equate to a yield of around
5.5%pa if it was to be set today.
While we remain cautious about investing in securities with terms to maturity longer than six years, due to
our expectation that interest rates will rise, the AIA130 bond is worth considering by those investors looking
to maintain a “laddered” debt portfolio and who currently have limited exposure to longer term securities.
Finally, it is worth noting that the liquidity of comparable securities is very low and hence it may not be
possible to buy and sell these securities at the spreads shown on page three. Being a new issue there is no
lack of liquidity for the AIA130 bond.
1 First NZ Capital Securities Limited NZX Firm www.firstnzcapital.co.nzAuckland International Airport
Unsecured Unsubordinated Bonds
Investment View
Issue Code Maturity Date Current Yield Spread to Swap
Interest Rate
AIA100 27/11/2014 3.95% 0.45%
AIA070 7/11/2015 4.20% 0.45%
AIA080 15/11/2016 4.35% 0.39%
AIA110 17/10/2017 4.79% 0.57%
AIA120 13/12/2019 5.30% 0.85%
*AIA130 28/05/2021 5.50% 0.90%
Source: First NZ Capital, IRESS
Auckland International Airport Limited (AIA) has announced the terms of an offer to issue up to
$150 million of 28 May 2021 (AIA130) fixed rate bonds. The interest rate is expected to be set at
0.9%pa above the seven year swap interest rate, which based on current interest rates is around
5.5%pa. The unsecured, unsubordinated bonds will be issued at the price of $1.00 per bond. The
first coupon payment will be paid on 28 November 2014.
Spread
The chart below shows how the spread to swap interest rate has moved over time. The spread on AIA070
and AIA080 was volatile during the global financial crisis, prior to 2010. Since then the yields at which the
AIA bonds traded fell in line with a fall in swap interest rates, although the spread remained around 1.5%
until mid-2012. From mid-2012 onwards the spread to swap interest rate at which AIA debt trades has
contracted, reflecting the improvement in the economic environment which has seen spreads generally
contract. In addition there has been solid demand for non-bank investment grade rated debt securities.
Spread to Swap Interest Rate
3.0
2.5
2.0
Percentage
1.5
1.0
0.5
0.0
2008 2009 2010 2011 2012 2013 2014
AIA100.NZ AIA070.NZ AIA080.NZ AIA110.NZ AIA120.NZ
Source: First NZ Capital, IRESS
2 First NZ Capital Securities Limited NZX Firm www.firstnzcapital.co.nzAuckland International Airport
Unsecured Unsubordinated Bonds
Comparative Securities
The following comparative securities are all unsubordinated debt securities.
Comparative Securities – Spread to Swap Rate
1.60
1.40
1.20
1.00
Percentage
0.80
0.60
0.40
0.20
0.00
Source: Auckland International Airport, First NZ Capital
Security Credit Spread to Swap Indicative
Issuer Maturity
Code Rating (1) Interest Rate % Liquidity
Auckland International Airport AIA100 A- 27/11/2014 0.45 Very low
Fonterra FCG010 A+ 10/03/2015 0.26 Medium
Meridian Energy MEL010 BBB+ 16/03/2015 0.66 Very low
TCNZ Finance TCN550 A- 15/06/2015 0.64 Very low
GMT Bond Issuer GMB010 BBB+ 19/06/2015 0.76 Very low
Auckland International Airport AIA070 A- 7/11/2015 0.45 Very low
Fonterra FCG020 A+ 4/03/2016 0.31 Very low
Genesis Energy GPL020 BBB+ 15/03/2016 0.95 Very low
TCNZ Finance TCN490 A- 22/03/2016 0.94 Very low
Auckland International Airport AIA080 A- 15/11/2016 0.39 Very low
Meridian Energy MEL020 BBB+ 16/03/2017 1.03 Very low
Auckland International Airport AIA110 A- 17/10/2017 0.57 Very low
Christchurch International Airport CIA1010 BBB+ 6/12/2019 1.27 Very low
Auckland International Airport AIA120 A- 13/12/2019 0.85 Very low
GMT Bond Issuer GMB020 BBB+ 16/12/2020 1.26 Very low
Wellington International Airport WIA020 BBB+ 15/05/2021 1.20 Very low
Auckland International Airport AIA130 A- 28/05/2021 0.9 (2) *New Issue
Christchurch International Airport CIA1020 BBB+ 4/10/2021 1.50 Very low
Source: Auckland International Airport, First NZ Capital
Notes: 1. Current credit ratings are from Standard & Poor’s.
3 First NZ Capital Securities Limited NZX Firm www.firstnzcapital.co.nzAuckland International Airport
Unsecured Unsubordinated Bonds
2. The interest rate for the AIA130 bond is yet to be set. However, an indicative spread of 0.90% over the
interest rate swap curve would indicate an interest rate around 5.50% if it were set today.
3. This comparison is limited to the Spread to Swap Rate chart above and the summary issuer table above it.
It is not, nor is intended to be, a comparison of the key features of each issuer.
As expected the AIA bonds trade at a higher spread than the better rated (A+) Fonterra securities. However,
they currently trade on lower spreads than the similarly rated TCNZ Finance securities. The TCNZ securities
are extremely illiquid therefore the indicated spreads may not accurately reflect the spread at which these
bonds may be traded at. Hence we conclude that the AIA bonds are fairly valued relative to the other A
rated securities.
The BBB+ rated securities all trade at much higher spreads than the corresponding AIA securities. This
reflects both the lower credit worthiness of these securities and the general lack of A rated securities to
invest in. Furthermore, it is possible to invest in bank debt securities, which have a higher AA- credit rating,
at yields which are the same or better than the A- rated AIA bonds.
In analysing the new AIA130 issue at an indicative spread of 0.9%, we observe that the GMB020, WIA020
and CIA1020 bonds which have similar terms to maturity and carry BBB+ credit ratings from Standard &
Poor’s currently trade at spreads of 1.2-1.5%pa. Consequently the indicative spread of 0.9%pa appears a
little low given the limited difference in credit rating. However, when compared to the other AIA bonds the
AIA130 bond does offer a slightly better spread than the AA- rated bank securities. However, in our opinion
it is still a little low.
We believe the comparatively low spread offered by the AIA130 bond is due to the strong demand for non-
bank debt securities which has resulted in bank debt securities appearing to be relatively attractive
investments.
Consequently we conclude that, while it is possible to find more attractive investments than the new
AIA130 bond, it does offer better comparative value than the other AIA bonds. Hence some investors will
probably find it useful to add these bonds to a debt portfolio so as to ensure good diversification by issuer.
In addition while we remain cautious investing in securities with terms to maturity longer than six years,
due to our expectation that interest rates will rise, the AIA130 bond is worth considering by those investors
looking to maintain a “laddered” debt portfolio and who currently have limited exposure to longer term
securities.
Finally, it is worth noting that the liquidity of comparable securities is very low and hence it may not be
possible to buy and sell these securities at the spreads shown. Being a new issue there is lack of liquidity for
the AIA130 bond.
John Norling
Wealth Management Research
4 First NZ Capital Securities Limited NZX Firm www.firstnzcapital.co.nzAuckland International Airport
Unsecured Unsubordinated Bonds
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To the extent that any such information, views, and recommendations constitute advice, they do not take into account any
person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice under the Financial
Advisers Act 2008, nor do they constitute advice of a legal, tax, accounting or other nature to any person. We recommend that
recipients seek advice specific to their circumstances from their adviser before making any investment decision or taking any
action.
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Copyright: First NZ Capital Securities Limited and its related companies, 2014. All rights reserved.
First NZ Capital Securities Ltd
Auckland Wellington
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