AUD CREDIT REPORT: Australian Gas Networks maintains busy run of utility names

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Headlines (19-Mar-2025)

** Australian Gas Networks keeps the utility flag flying with first deal in 4-years

** ACGBs hold on to a modest cheapening impulse into the close

The pace of AUD supply dropped down a gear on Wednesday where the spotlight was on Australian Gas Networks Ltd (ticker: AGIAGN), rated A3/A- (both stable) by Moody’s/S&P, which mandated CBA, SMBC Nikko and Westpac to arrange a group investor call and a series of debt investor meetings which actually kicked-off yesterday (18th March) and will conclude today.

AGN is planning to follow up with a potential 8.5-year senior secured fixed rate benchmark note, subject to market conditions. The notes are expected to be rated A3 by Moody’s & A- by S&P.

AGN is one of Australia’s largest gas distributors, servicing ~1.4 million retail and industrial customers across five states/territories with ~26,300km of distribution networks and ~1,800km of transmission pipelines.

The company is poised to add to the recent slew of regional utilities which have hit the AUD primary market with varying degrees of success this month.

And the issue should also provide investors with a bit of additional scarcity value given that this would represent the first time that AGN has tapped the denomination since April 2021, according to our records.

As a reminder, that dual-tranche issue comprised of A$250m 2.1486% 28-Apr-2028 and A$200m 2.820% 28-Apr-2031 lines which landed at reoffer spreads of SQ ASW+95 and +120, having been revised from initial price guidance at +100a and +120-125a respectively.

We did not get confirmation of the final book sizes at reoffer which was fairly typical amid a less transparent execution process back then.

It is also worth highlighting that the dual-tranche issue was the issuer's first time back in the A$ market after a more than 15-years in the wilderness, with the prior issuance having taken place in Feb 2006.

Meanwhile, sources close to the forthcoming deal have assembled the following list of comps which includes the aforementioned AGIAGN Apr 2031s.

+ AUD Comps (Tradeweb mids, close 18 March 2025)

In terms of relative value, we thought that this was a particularly interesting issue given that we've used three different methodologies to calculate fair value on the new 8.5-year line and they all bring us back to the same, or at least a very similar, outcome.

So lets start by looking at today's forthcoming dual-tranche offering from fellow utility in the same ratings class ETSA Utilities Finance Pty Ltd (SA Power Networks), also rated A- (stable) by S&P, where group is poised to pay ASW+145bps to take A$250m of 10-year funding out of the market. Meanwhile, the recent 2-part exercise from Port of Brisbane shows us that a 7s/10s credit curve is worth 20bps, which in turn implies that a 1.5-year curve is worth 10bps. Subtracting that from the new ESTA 10-year at ASW+145 therefore takes us to fair value on the new AGIAGN 8.5-year transaction at ASW+135.

Looking at it another way, the old AGIAGN Apr 2031s are at +122.8 mid as per the comp list, while the issuer’s existing Apr 2028s, which are not included among the official comps, were ca. ASW+108 on the screens this morning. A straight-line extrapolation of those lines also gets us to ca. ASW+135 for a hypothetical AGIAGN Sep 2033 line.

And those methodologies would also appear to make sense based on the one notch lower rated ANVAU May 2033 and May 2034 pair which highlight that the credit curve is pretty flat at just 1.3bp for the 12-month differential. An interpolation then would take us to the ASW+142 ball-park for a theoretical ANVAU Sep 2033 line, while subtracting ca. 5bp to account for the rating differential versus AGIAGN implies fair value on the latter’s new 8.5-year line in the ASW+137a.

Taking those calculations into consideration gives us fair value on the new 8.5-year line in the ASW+mid/high 130s ball-park or an average of +136.

Australian Gas Networks joins a trio of issuers that have already seized upon a more constructive broader risk market tone this week, in the shape of ETSA Utilities Finance Pty Ltd (the principle finance vehicle for the business activities of SA Power Networks), The Export-Import Bank of Korea (KEXIM) and Stockland Trust Management Limited, which have priced their respective deals on Wednesday afternoon.

See the priced deals and live deals tables below for the latest details of those lines including the book sizes and new issue concessions where available. And see Tuesday’s AUD CREDIT REPORT for a more detailed relative value analysis on those three transactions.

List of AUD transactions placed by utilities in 2025 YTD

Source: Informa Global Markets (IGM)

Snapshot of AUD deals priced in the week ending 21-Mar-2025. Click on the link for the full pricing details.

See the AUD NICs & Books Week Ending 21-Mar-2025 spreadsheet for the full pricing evolution of all last week's regional AUD-denominated bond issues complete with new issue concessions, book sizes, cover ratios, and convenient links to IGM relative value analysis and distribution statistics where available.

Round up of price action in the AUD government bond market on Wednesday 19th March and the drivers behind it. This report was originally published at 16:01 Sydney time today by Mooris Tjioe from the IGM Asia Rates Team

ACGBs have held on to much of a modest cheapening impulse heading into the close, although the overall scale of cheapening has remained rather limited, leaving yields a little higher on the day. YM is -1.0 while XM is -1.5, with both contracts seen meandering below their respective overnight closes, with overall trade remaining rather tepid. YM and XM futures however remain far above their respective overnight lows (at -4.0 and -4.5), having mirrored moves in US Treasuries from then. Bills run 1 to 2 ticks cheaper through the reds, bear flattening slightly

The latest sale of A$800mn of ACGB Dec-35 (#TB171) went decently well, with cover seen at 3.53x (3.00x prev.), noting that this is the fourth sale of the line from its syndication in Jul '24. The weighted average yield printed 0.54bp through prevailing mids - not stellar, but certainly nothing worrying by way of demand at those levels. There was scant reaction in ACGBs on the release of results from the auction

• There were 37 bids in total (37 prev.), of which 14 were successful (15 prev.), and 5 were allocated in full (7 prev.).
• The amount allotted at the highest accepted yield as a % of the amount bid at that yield was 39.5% (55.1% prev.)

The Westpac Leading Index growth rate rose in Feb from Jan, pointing to an increased pace of economic activity relative to trend three to nine months into the future. Westpac said that the reading "remains consistent with a gradual recovery rather than a sudden surge", and that it now sees GDP growth marking "a slow rise" over '25 before hitting +2.2% Y/Y by end-'25 - which would be "a material improvement" over the +1.3% Y/Y growth seen in '24. Westpac noted that Australia's growth "typically tracks in the 2.5–3% range, about 1ppt above population growth" (Westpac report here)

• Feb Westpac Leading Index Growth Rate +0.8%; Jan +0.6%

Looking ahead, note there isn't too much re: major data releases due this week, with the labour market report for Feb set to headline an otherwise relatively tame week tomorrow, rounding out the week's domestic data slate