2018 Annual Report Highlights

Bondholders

Information that is likely to be of interest to holders of Infratil’s Infrastructure Bonds, which is not included elsewhere in the annual report, is set out below. 

The infrastructure bond year in review

Over the year, Infratil repaid two maturing bonds and issued two new bonds:

  • Repayment of $66.3 million of bonds paying an 8.5% per annum coupon that were issued in January 2011.

  • Repayment of $81.1 million of bonds paying an 8.0% per annum coupon that were issued in November 2011.

  • Issuing $100.0 million of 5.65% per annum coupon bonds maturing in December 2022.

  • Issuing $43.4 million of 6.15% per annum coupon bonds maturing June 2025.

Infratil has previously established an explicit $30 million bond buy back capability, but over the year the market operated effectively and no bond buy backs occurred. The main purpose of buying back bonds would be to remedy market illiquidity and unfair prices.

The start and end of year yields of three of the bonds is set out in the table, along with their yield-spread relative to government bonds.

Maturity

Yield 31 March 2018

Relative to Govt Bonds

Yield 31 March 2018

Relative to Govt Bonds

November 2020

3.90% p.a.

+2.00% p.a.

4.80% p.a.

+2.40% p.a.

February 2022

4.10% p.a.

+1.80% p.a.

5.00% p.a.

+2.45% p.a.

June 2024

4.75% p.a.

+2.25% p.a.

5.70% p.a.

+2.95% p.a.

 

The decline in New Zealand Government Bond rates over the year (the benchmark 5 and 10 year bonds fell in yield from 2.56% per annum to 2.38% per annum and from 3.28% per annum to 2.89% per annum respectively) saw all creditworthy bonds follow suit.

The most intriguing (and positive) development for holders of Infratil’s bonds fell to those with the Perpetual Infratil Infrastructure Bonds (PiiBs). In November 2017 the annual coupon rate for these bonds was reset at 3.50% per annum which is an all-time low. However, from 31 March 2017 to 31 March 2018 the price of the PiiBs in the market rose from $65 per $100 to $79 per $100. Someone who bought them at the start of the year and sold at the end earned a return of 27% per annum.

If the rise in price is logical, it can be explained by two factors. One is that as the yields on other bonds fell, even a coupon of 3.5% per annum becomes more attractive. The second is that investors anticipating higher interest rates in the future prefer a security which resets its rate annually.

Further explanation of the PiiB can be found on Infratil’s website.

Continuous disclosure of information 

As Infratil has shares and bonds listed on the NZX it is required to continuously disclose information which could be relevant to investors.

This includes:

  • Annual and interim reports which are released each May and November. They provide financial statements, a summary of key developments and activities, and guidance as to expectations of short term earnings and investments.

  • Update newsletters which give in-depth coverage of topics relevant to Infratil’s businesses. Market reports which give periodic coverage to the operating activities of Infratil’s businesses and interesting market influences.

  • Occasional announcements on matters which could be material to the value of Infratil’s shares and bonds, such as changes in personnel, transactions, financial results, payments to share and bond holders, and so on.

  • Infratil hosts an annual investor day where management present on investment market conditions, strategies and specific business plans. The presentations are available on Infratil’s website.

Infratil's capital structure

Infratil’s capital structure means lender rights are tiered. A lender to, say, Trustpower will have direct recourse to the assets of Trustpower and no recourse to the assets of Infratil. A lender to Infratil will have recourse to Infratil’s assets including its shareholding in Trustpower, but no direct recourse to the assets of Trustpower.

There is also a distinction between the rights of the banks that lend to the Infratil 100% group and the rights of Infratil’s bondholders. The banks have preferred recourse to Infratil’s shareholdings (in companies such as Trustpower) and other assets of members of the Infratil 100% group that provide a guarantee to the banks.

The upshot is that Infratil’s bondholders have rights to all of Infratil’s assets and are not limited to the assets of just one subsidiary, but their recourse to assets of Infratil’s subsidiaries is only after the direct recourse of other lenders and creditors.

As at 31 March 2018, the Infratil group debt comprised:

  • $1,529.9 million of net debt of subsidiaries in which Infratil had less than a 100% interest (This included $42.4 million of Perth Energy’s borrowing which was guaranteed by Infratil. None of the other debt was guaranteed by Infratil).

  • $1,002 million of Infratil Infrastructure Bonds.

  • The wholly-owned group also had $222 million of net bank deposits.

These amounts do not include the borrowings of the companies in which Infratil owns less than 50%. Infratil does not guarantee any of the debt or other liabilities of these companies which include Canberra Data Centres, RetireAustralia, ANU Student  Accommodation and Longroad Energy.

Infratil Annual Report 2018
Infratil Annual Report 2018
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