Cathay Pacific raises US$650 million in first US-dollar bond sale in 27 years to fuel survival amid global air travel slump
- Hong Kong’s flag carrier raised US$650 million by selling a bond yielding 4.875 per cent, tighter than its initial price guidance of 5.20 per cent
- Airlines have sold a record US$21 billion worth of bonds so far this year as they grapple with the standstill in global travel
Hong Kong’s flagship airline plans to use the bond proceeds as working capital and for general corporate purposes, according to a terms sheet seen by the South China Morning Post. The fundraising comes less than a year after the airline received a HK$39 billion (US$5 billion) bailout from Hong Kong’s government.
The airline, which is burning through as much as HK$1.9 billion a month, talked with Asian and European fixed-income investors on May 6 and May 7 about where to pitch the price of the bonds.
After gathering feedback, Cathay Pacific started marketing the 5.25-year senior unsecured bond with initial price guidance of 5.20 per cent on Monday morning, according to a terms sheet seen by the South China Morning Post.
The city’s dominant carrier was able to raise the size of the offer from US$500 million to US$650 million after investors lodged over US$1.3 billion worth of orders, according to a person familiar with the matter.
Cathay Pacific was able to price the bond at 4.875 per cent, tighter than the initial guidance, the person familiar with the deal said late on Monday.
The deal attracted pledges from 154 would-be investors. Cathay Pacific and its bankers allocated 88 per cent of the bonds to Asia-based investors, 10 per cent to European accounts and 2 per cent to offshore US investors. About 22 per cent of the bonds went to banks and private-banking clients, while 78 per cent ended up with asset and fund managers, according to a terms sheet seen by the Post on Tuesday.
Moody’s changed its outlook for the global airline industry to positive from negative on Tuesday, reflecting its expectation that air travel will restart later this year as coronavirus vaccinations around the globe allow governments to lower barriers to entry for visitors and reentry for residents returning home.
Airlines globally have sold US$21.1 billion worth of bonds so far this year, a record for the period according to Refinitiv which started compiling data in 1998. The industry also amassed US$35.4 billion of debt last year, again an all-time high, as the coronavirus pandemic plunged the industry into its worst crisis ever.
Singapore Airlines issued its first US-dollar denominated bond in January, pricing the notes maturing in 2026 at 3 per cent, lower than Cathay Pacific’s coupon. The Lion City’s flag carrier benefits from backing by Temasek Holdings, an investment arm of the Singaporean government.
Prospects for 2021 remained uncertain, the airline’s chairman Patrick Healy said in March, describing the past 12 months as “the most challenging” period in the carrier’s 70-year history.
Cathay Pacific offered its Hong Kong-based pilots, cabin crew and airport staff voluntary redundancy last month as part of its cost-cutting plans, and warned that business is not improving under the “devastating impact” of the pandemic.
The airline has sold Hong Kong-dollar denominated fixed-income products to private-markets investors but has not issued a US-dollar bond since about 1994 when it also issued a five-year unsecured bond. Over the years, it has largely been able to rely on cheaper bank loans from Hong Kong’s largest financial institutions, such as HSBC. However, since the crisis erupted, it has had to diversify its funding sources to stay afloat.
Unsecured bonds are not backed up by some form of collateral. Investors can only rely on the company’s promise to pay a coupon annually and repay the principal when the bond matures.
Cathay Pacific mandated Bank of China’s Hong Kong unit, Citigroup, HSBC and SMBC Nikko as joint lead managers and joint bookrunners on the deal.