Rio Tinto buying back bonds first, fund later

Easy money conditions in the bond market continue to encourage companies to make new issuances and repay existing debt.

Rio Tinto is the latest to go with the trend, offering to buy back up to US$2.5 billion of 2013 bonds. It will follow this up with bond issuances to fund the buyback.  

Rio is offering a spread of 40 basis points to similar-maturing Treasuries, which equates to a price of around $US1.135 to a dollar.

Close on the heels of the announcement of a new bank facility, Fortescue Metals last week announced it is planning a sale of 2015 bonds of the same amount, of US$2.04 billion. The senior unsecured notes will be rated BB+ and the bond sales are expected to be utilised to repay debt.

Telstra has used the buoyant bond market to raise funds to refinance maturing debt and for general working capital needs. Strong demand meant the company was able to secure debt at a slightly cheaper price, with the 10.5 year €500 million bond sold at a spread of 95 basis points over euro mid-swaps, compared with March, when a 10-year bond was raised at 103 bps over swap. Telstra said the issue was more than three times over-subscribed, with demand from over 150 investors.

Taking advantage of the appetite for bonds was real estate trust CFS Retail Property, which made the biggest domestic debt sale by an Australian property company in over four years. The company sold $450 million of floating rate notes via two issues, with $160 million of the May 2014 notes at a yield of 160 bps over the bank bill swap rate, and $290 million of May 2016 notes at a spread of 185 bps. The sale is reported to be the biggest since GPT Group raised $700 million in March 2006.

There were no significant bond issues by Australians firms in the US market, but joining companies mulling such issuance are two energy companies, TruEnergy, an Australian energy retailer and New Zealand's Mighty River, a hydro electricity generator. Both are reported to be considering selling debt in the US bond market.

Among issues by banks, Commonwealth Bank raised €40 million of 10-year notes at a 1.6 times Belgium's inflation rate.  And, in New Zealand, ASB Bank added NZ$225 million to its July 2013 issue, at 125 bps over swap rate.