IFR Asia – March 17, 2018

KKR doubles down on Japan

„ Bonds US buyout firm’s fundraising follows busy year for Japanese deal-making

BY TAKAHIRO OKAMOTO

Private equity giant KKR made its

debut in the yen bond market

last week with a ¥40.3bn

(US$380m) Global bond to raise

funds for its deal-making in Japan.

The fundraising is similar to

last year’s Global yen offerings

from Walmart and Corning, both

of which are believed to have

used the funds locally.

KKR said the bond proceeds

would be used for “general

corporate purposes, including to

fund potential acquisitions and

investments in Japan”.

Market sources said the deal

also served other objectives,

helping KKR diversify its funding

channels and improve its name

recognition in Japan.

While KKR preferred raising

long-term funds for business

reasons, investors favoured the

shorter end as this was a maiden

issue and also a first from the

private-equity sector.

Of the tranches of five, seven

and 20 years, the shortest drew

good demand, leading KKR to

cap the size at ¥25bn. Demand

came mainly from big domestic

banks, though many regionals

also participated.

KKR also raised ¥5bn from the

seven-year piece and ¥10.3bn

from the 20-year portion. The

seven-year maturity reflected

KKR’s preference for longer

notes, though investors hesitated

to buy this tenor.

Japanese investors usually

prefer tenors of five and 10

years, not seven. However, this

time, demand seemed limited for

the 10-year piece.

“We couldn’t expect to see

the demand we usually see for a

10-year piece in deals involving

financial institutions,” said a

banker on the offering.

The buyers of the seven-year

tranche were asset managers,

trust banks and regionals. The

20-year piece went mainly to life

insurers.

Fair value was tough to

calculate, as KKR does not have

comparable bonds in yen. It is

also not a frequent issuer in

US dollars and has no direct

comparables outstanding in

seven-year or 20-year maturities.

Global banks with similar

credit ratings were also poor

benchmarks. As such, price

guidance was based on feedback

from investors.

“It was based on investors’

preference for maturities and

their ideas on spreads, rather

than just adding extra basis

points on its US dollar curve,”

said another banker on the deal.

Price guidance at the start of

marketing on Monday was 35bp–

LTA sets pace for infra funding

„ Bonds Statutory board prints Singapore’s first 30-year bond since 2012

BY KIT YIN BOEY

LAND TRANSPORT AUTHORITY of

Singapore returned to the bond

market last week after almost

three years with a S$1.2bn

(US$914.3m) offering that

will set a template for future

infrastructure financings in the

city state.

The dual-tranche jumbo

comprised a S$300m 10-year

portion priced at 2.75% and a

S$900m 30-year piece at 3.35%,

both in line with guidance.

Distribution statistics were not

released, but the book was heard

to be well covered.

The Singapore statutory

board, responsible for public

transportation projects and seen

as a proxy for the government,

increased the total issue size

from an original target of S$1bn.

Demand was healthy for the

very rare 30-year maturity, a

tenor not seen since Keppel sold

a S$300m 4% 30-year bond in

September 2012. While Keppel

was the first non-financial issuer

to print at the 30-year mark, the

notes included a call in year 20,

making LTA’s bonds the first true

30-year corporate benchmark

since 2009, when sovereign

wealth fund Temasek Holdings

raised S$300m from 4.2% 30-year

notes.

Outside the banking sector,

only Temasek has gone beyond

that maturity, selling a S$1bn

4.2% 40-year bond in 2010.

LTA’s 30-year benchmark will

clear the way for more long-

term financings from statutory

boards and government-linked

companies as they plan massive

infrastructure spending in the

coming years.

Major projects include a S$3bn

integrated waste-management

facility, the S$11.9bn Kuala

Lumpur-Singapore high-speed

rail link, the development of

Terminal 5 at Changi airport,

expected to run into tens of

billions of dollars, and the

Johor-Singapore rapid transit

link, for which there are no cost

estimates yet.

Minister for Finance Heng

Swee Keat said last month that

the government might grant

guarantees to state-owned

companies and statutory

boards to facilitate future large

infrastructure projects. A direct

guarantee would compress the

pricing of already tightly priced

bonds from statutory boards,

leaving little on the table for

investors.

Clifford Capital is the only

government-linked issuer

to benefit from an explicit

guarantee of its debt. The

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