Swire Pacific has mandated HSBC to arrange the sale of its $1.8 billion seven-year fixed-rate notes. The company also gave mandates to HSBC and Morgan Stanley for its upcoming 10-year US dollar Regulation S Eurobond offering. Swire has not tapped US corporate long bond markets since 1996. HSBC was the bookrunner on a $1.5 billion multi-tranche (three-year, five-year and seven-year) medium-term note issue in November 2004. Swire said in its annual results announcement last week that it would sell up to $5 billion of seven-year and 10-year bonds to cover perpetual bonds of US$300 million and help refinance a bridging loan for a 50 per cent stake of Festive Walk. Martin Cubbon, Swire's group finance director, added that the company would borrow up to $14 billion this year for potential acquisitions of property projects on the mainland. The US perpetual bond, issued in November 1996, carries annual interest of 9.33 per cent, with an option that Swire can repay earlier in full by the end of October. Analysts said the yield curve inversion has established logical ground for Swire to finance its short-term notes with long-term bonds, given that the capital cost of both vehicles is more or less equal. Moody's Investors Services assigned an A3 rating to the Hong Kong seven-year fixed-rate notes and the rating outlook for Swire remains stable. The A3 rating assigned to the notes reflects the company's credit strengths, including its prudent business strategy and financial management practices, and the strong recurring cash flow from its property investment and sector-diversified business, said Elizabeth Allen, lead analyst at the international credit agency. Swire has carried a strong balance sheet with net debt to equity of 12 per cent, even following its recent $6.18 billion Festive Walk acquisitions. The weighted capital cost of Swire is 6.4 per cent, 7.6 per cent and 6.2 per cent in 2003, 2004 and 2005, respectively.