Hong Kong airport’s US$1.5 billion bond oversold by 10 times as investors clamour to bet on post Covid-19 travel recovery
- Perpetual securities diversify funding during pandemic without diluting government equity ownership
- Investors’ demand for the highly rated debt issue peaked at over US$15 billion
Airport Authority Hong Kong (AAHK), the operator of the city’s airport, said on Wednesday that it has raised US$1.5 billion by selling perpetual debt to help fund the completion of its mega third-runway project.
Investors from sovereign wealth funds to insurance companies clamoured to participate in the sale and the deal’s order book peaked at over US$15 billion. In the end, 280 investors across Asia and Europe took part in the transaction, driven by the belief that the pandemic is a temporary event and that Hong Kong is well-placed as a hub within the Greater Bay Area to benefit from the eventual rebound in travel.
“We are very pleased with the overwhelming response from the global investor community, which is a testimony to the market’s confidence in Hong Kong International Airport’s business recovery when the pandemic subsides,” said Jack So Chak-kwong, AAHK’s chairman in a statement.
Hong Kong’s government owns AAHK, bolstering investors’ confidence that if AAHK were to struggle to sustain interest payments it would likely be bailed out. The AAHK plays a key role in maintaining Hong Kong as an aviation hub.
The perpetual securities did not dilute government ownership even though they are accounted as equity-like instruments and diversify the AAHK’s funding.
“The measures would accelerate the post-Covid air travel recovery and enhance HKIA’s role as an international aviation hub,” said S&P Global Ratings analyst Gloria Lu in a report. S&P rates AAHK’s debt securities “AA”, one notch lower than AAHK’s rating.
The dual-tranche debt securities comprise a US$750 million non-call 5.5-year as well as a US$750 million non-call 7.5-year perpetual capital security.
The 8.7 times and 10.7 times oversubscription rate for the two tranches enabled the AAHK to price the offering at 2.1 per cent and 2.4 per cent, 65 and 70 basis points tighter than initial price guidance.
The debt sale is a landmark event for investors and capital markets in several ways. The AAHK achieved the lowest coupon rate ever for a US-dollar denominated Asian corporate hybrid transaction.
It is also the highest-rated entity perpetual globally; the largest Asia US dollar-denominated perpetual offering since May 2017; and achieved the lowest yield (for both tranches) to date for a US dollar-denominated perpetual from an Asian issuer.
The joint global coordinators and joint book-runners are HSBC, Standard Chartered Bank and UBS, and joint book-runners are BofA Securities, Bank of China and Mizuho Securities.