Hong Kong KCRC launches $750 mln 10-yr bond

"Hong Kong KCRC launches $750 mln 10-yr bond | AboutHK.Com - more information about HK"

Hong Kong-based Kowloon-Canton Railway Corp (KCRC) is selling $750 million of 10-year bonds at a yield of 195 basis points over Treasuries, an official at one of the lead managers said on Monday. KCRC becomes the latest Asian issuer to sell bonds overseas, taking advantage of sharply improved credit conditions and increased investor demand for riskier emerging market debt. The spread for the bond is at the tight end of initial guidance of 195-205 basis points over equivalent U.S. Treasuries, said the official, who declined to be identified. The size of the bond is also at the top end of initial $500-750 million guidance. "In our view, it is not particularly exciting but should still perform well given demand for such liquid Asian quality in the market," said Brayan Lai, a credit analyst at Calyon, in a note to clients discussing the pricing levels. The debt sale for KCRC, which remains a separate legal entity after a rail merger in 2007 with Hong Kong subway operator MTR Corp (0066.HK), is backed by a letter from the Hong Kong government saying it will maintain full ownership of the company. The support is important in allowing KCRC to keep its solid investment grade rating. The debt was rated at "Aa3" by Moody's Investors Service, the fourth-highest rating, and two notches higher at "AA-plus" by Standard & Poors. Improving credit market conditions are spurring Asian debt sales in overseas markets, but so far only countries or issuers with high credit ratings have been able to tap markets. Sales of bonds in dollars, euros and yen have more than doubled to $19.6 billion so far this year from $9.3 billion in the same period in 2008, according to Thomson Reuter's data. KCRC is selling the debt under its $3 billion global medium-term note programme intended to repay some of its existing debt and for general working capital. The sales will be done in blocks and will also look to raise bonds in Hong Kong dollars. Last month, KCRC said it would repay $2 billion in existing bonds and notes over the next 12 months, $1 billion in July this year and $1 billion in March 2010. [ID:nHKG372834] KCRC posted a net loss of HK$1.8 billion ($232.3 million) last year, compared with a HK$5.3 billion profit in 2007. The railway operator attributed the loss to the depreciation of its railway assets and interest charges from outstanding loans that had been taken out to support an expansion. Under the rail merger with Hong Kong's MTR, KCRC is limited to receiving a fixed annual payment of HK$750 million, but has a gross revenue sharing agreement with the subway operator starting in 2011. "Upward rating pressure on KCRC will be limited in the medium term, given its projected weak financial profile over the next two years," Moody's Investors Service said in a note last month. Citigroup (C.N), Deutsche Bank (DBKGn.DE) and HSBC (0005.HK) (HSBA.L) are the lead underwriters for the transaction. Comments Please login to post comments or replies.