From Matthew Macreadie, Income Asset Management
AusNet Services Holdings (Baa1/BBB+) has launched a mandate for a potential 30NC6 subordinated notes transaction in fixed and/or floating rate note format, with an expected issue rating of Baa3/BBB- (Moody’s/S&P).
Price guidance is yet to be announced with an expected launch next week. The new A$ hybrid securities issue aims to support a strong balance sheet, maintain stable credit ratings, and enhance financial flexibility for growth, with proceeds directed towards general corporate purposes.
About the Issuer
AusNet is a diversified energy infrastructure group based in Victoria, Australia, operating gas and electricity distribution and transmission networks. Formerly SP AusNet, the company manages over $13 billion in assets and is owned by Australian Energy Holdings No 4 Pty Limited, controlled by Brookfield Asset Management, with co-investors including Australian and Canadian pension funds.
AusNet operates three key networks in Victoria:
- Electricity Transmission
- Electricity Distribution
- Gas Distribution.
Also read: Australian Securitisation – 2024 Another Record-Breaking Year
AusNet benefits from robust operating cash flows, with about 86% of its total revenues generated from regulated assets. The company enjoys strong cash flow and revenue predictability due to the stable and transparent regulatory framework it operates within. Its electricity transmission and distribution networks, which make up 78% of its revenue, are regulated by maximum allowable revenue, protecting the company from volume risks.
As the regulatory reset periods for its electricity distribution (2026) and transmission (2027) businesses draw closer, higher revenues are anticipated, driven by inflation, an increased risk-free rate, and rising RAB adjustments.
Relative Value
We estimate the fair value of the proposed deal to be around +225-235bps, which equates to a YTC of 6.278% – 6.378%.
The Scentre (SCG) 30NC5 Sub Notes are trading at a senior-sub ratio of approximately 1.78x. When applying this to the ANVAU A$ senior bond curve, we interpolate the 6-year point (~130bps) between the ANVAU 2.9% 2029s and 6.134% 2033s, resulting in a spread of around 230bps.
The spread difference between the Ampol (ALD) Mar-26 call Sub Notes and the recently issued Mar-30 call Sub Notes is about 60bps, or roughly 15bps per year. The ANVAU Oct-25 call Sub Notes trade at approximately 149bps, which suggests an ANVAU 30NC6 spread of around 230bps when factoring in the ALD sub-term structure.
Timing
There is currently a mandate out for Ausnet and we expect the transaction to launch next week. Bids will be accepted in minimum lots of A$50k, with increments of A$10k thereafter, and a facilitation fee will apply on top of the issue price.
