CATHAY LAUNCHES U.S. DOLLAR BOND SALE

The embattled city carrier already has US$1b in tentative orders for the unsecured instruments, expected to pay 5.2pc during a 5.25-year term

Cathay Pacific Airways is selling a US-dollar denominated bond for the first time in nearly three decades, less than a year after getting a HK$39 billion bailout from the city, as it battles to stabilise its finances amid a near-shutdown in international travel.

The carrier was looking to raise at least US$500 million yesterday and has already attracted roughly US$1 billion in tentative orders from fixed-income investors, pending the final guidance, according to a person familiar with the matter. The affiliate of Swire Pacific plans to use the bond proceeds as working capital and for general corporate purposes, according to its terms sheet.

Cathay Pacific was one of the airlines hit first and hardest by the coronavirus, which quickly halted most global air travel. Without a domestic flight network, the carrier relies on cross-border travel to more than 190 global destinations in more than 60 countries, which remains largely non-existent due to travel restrictions.

The airline and its bankers will face a challenge selling the bond without offering a generous coupon given the parlous state of the issuer’s finances. Investors cannot rely on guidance from major credit rating agencies such as S&P Global Ratings, Moody’s or Fitch, as Cathay Pacific has not sought a rating from them.

The airline talked with Asian and European fixed-income investors on May 6 and May 7 to price the bonds, which are not available to United States investors under American regulations.

After gathering feedback from investors, Cathay Pacific launched its marketing for the 5.25-year senior unsecured bond with initial price guidance of 5.2 per cent yesterday, according to a term sheet seen by the

China Morning Post. Pricing was set to possibly tighten between 25 to 40 basis points before bankers and investors settled on final terms yesterday, according to a person familiar with the matter.

Singapore Airlines issued its first US-dollar denominated bond in January, pricing the notes maturing in 2026 at 3 per cent. The city state’s flag carrier benefits from backing by Temasek Holdings, an investment arm of the Singaporean government.

As another benchmark for investors, Cathay Pacific is pointing to its five-year convertible bond issuance, announced in January. The 2026 convertible bond traded on Friday at 105.066 with a yield of 1.633.

The carrier, the recipient of the Hong Kong government’s largest private-sector bailout last June, reported a record loss of HK$21.6 billion in 2020 as the coronavirus pandemic plunged the global aviation industry into its worst crisis ever. Cathay Pacific, a founding member of the OneWorld alliance of global carriers, was the world’s fifth-largest airline by sales as of 2016.

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 its 70year history.

Cathay Pacific offered its Hong Kong-based pilots, cabin crew and airport staff voluntary redundancies last month as part of severe cost-cutting.

The airline is still burning as much as HK$1.9 billion a month as the pandemic continues to strangle global travel.

Cathay Pacific was saved last June by a HK$39 billion bailout from the government, arranged by Financial Secretary Paul Chan Mo-po, but despite the financial aid, the carrier has continued to cut staff.

The airline has tapped private markets with fixed-income products, but has not issued a US-dollar bond since 1994, when it also offered a five-year unsecured bond.

Unsecured bonds are not backed up by any type of collateral. Investors can only rely on the company’s promise to pay the annual interest coupon, and eventually repay the principal.

Cathay Pacific has mandated Bank of China’s Hong Kong unit, Citigroup, HSBC and SMBC Nikko as joint lead managers and bookrunners on the deal.