Qube the diversified logistics and shipping company founded by Chris Corrigan has closed its new debt issue early, highlighting the strength of demand for well-priced corporate bonds. The subordinated notes issue was upsized from $200 million to $300 million and the final margin above the 90 day Bank Bill Swap Rate was 3.90% (the low end of the bookbuild range) giving investors an initial yield of around 5.65%. Such was the demand, the book-build was closed within 24 hours of the issue launch and the general offer was withdrawn.
A day after the launch of the debt issue private equity firm Carlyle Group LP announced the sale of a stake in Qube worth an estimated $264 million.
NEW QUBE NOTES TO YIELD AROUND 5.65% (original story 30 Aug 2016)
Most hybrids and notes listed on the ASX have been issued by banks, so it is pleasing to see something from a non-bank issuer. Qube Holdings, chaired by Chris Corrigan, formerly of Patrick Corporation fame, has announced it intends to issue Qube Subordinated Notes (ASX code: QUBHA), seeking to raise $200 million (subject to demand). As the notes are not being issued by a financial institution, there are no “trigger event” conversion or write-off clauses which are required under the Basel III bank regulatory framework. At the prevailing level of interest rates, they will pay around 5.65% over the first quarterly period.
The new notes have an indicative distribution of BBSW plus a margin of 390bps to 410bps. The final margin will be determined by a book build, which is a tender process managed by investment banks on behalf of Qube. The maturity date is on 5 October 2023 and the notes are not callable; that is, Qube do not have the right to redeem the notes early.
The chart below shows the history of issue margins of ASX-listed notes over the last six years. Prior to 2010, few notes and bonds were listed on the ASX. The new notes are shown at both the lower end of the indicative margin (390bps) and the upper end (410bps).
Issue margins are set close to the margins of comparable securities already trading on the ASX. Unfortunately, there is little in the way of notes with a comparable maturity date. The chart below shows the trading margins of other notes and bonds which trade on the ASX as at the close of business 30 August 2016, as well as the new notes at both the lower and upper ends of the indicative margin range.
YieldReport has explained the term “trading margin” before but in the interests of new readers and those readers who just need some revision, the trading margin is the annualised total percentage return a security gives in the form of income and capital over and above the Bank Bill Swap Rate, otherwise known as “BBSW”. (BBSW is a benchmark interest rate and it is the rate the major banks are alleged to have rigged in their own favour). The income component is typically calculated as the annual income, inclusive of franking credits if present, from a security as a percentage of the price assuming BBSW remains constant. Any capital gain or capital loss over the life of the security which will arise if the security is purchased at a price different to the face value, which in most cases is $100.00, is then annualised and added or subtracted from the annual percentage income. The trading margin is the difference between this return and BBSW.
The issue is open to holders of Qube ordinary shareholders registered on 25 August 2016 and clients of the joint lead managers, co-managers and syndicate brokers to the issue. The closing date for the “Shareholder” and general offers is expected to be 28 September 2016 while the “broker firm” offer is scheduled to close on 4 October 2016. These dates may be brought forward.
Trading on the ASX is expected to commence on 6 October 2016.