Auckland International Airport Limited (ASX: AIA) has announced further details of its planned fixed-rate retail bond offer on the NZX debt market. Here are the highlights from the announcement:
- The bonds have an issue amount of NZ$125 million with the ability to accept up to NZ$50 million in oversubscriptions at AIA's discretion
- The bonds will have a tenor of 6 years with a maturity date of 10 October 2024
- The interest rate set on the bonds is expected to be announced on Monday 24 September 2018
- Interest will be paid semi-annually in arrears
Whilst the interest rate on the bond offer has not yet been announced, AIA already has five similar bond issues with a total issue amount of NZ$675 million and an interest range of 3.64% at the lower end to 5.52% at the upper end.
I expect that the latest bond offer will be at the lower end of that range.
Auckland Airport appointed Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) as joint lead managers for the bond offer and Link Administration Holdings Ltd (ASX: LNK) will be the registrar.
Similar to Sydney Airport Holdings Pty Ltd (ASX: SYD), AIA has benefited from significant passenger growth, particularly with visitors from China and South East Asia.
The focus going forward will be to continue increasing capacity and unlike Sydney Airport, AIA has no flight curfew and is capable of operating 24 hours a day, 7 days a week.
Airlines such Air New Zealand Limited (ASX: AIZ), Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) will also likely benefit from the increased capacity and tourism boom.
Foolish Takeaway
I think it's a good move for AIA to borrow at fixed, low rates and use that capital to increase long-term capacity. I personally would not, however, buy the retail bonds as I think there are better opportunities that can outperform the bonds even on a risk-adjusted basis over that 6 year period.
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