Network Rail Seeks More US Dollar and Yen Debt
Dow Jones Newswire: January 25, 2006
Network Rail, the owner and operator of the U.K.'s national rail infrastructure network, will seek to sell more U.S. dollar bonds as well as more private placements, according to Fred Maroudas, director of funding, and Samantha Pitt, head of corporate finance.
"We will start looking at smaller private placements and the structured stuff starting initially with callables," Pitt told Dow Jones Newswires on the sidelines of a Citigroup Inc. fixed-income conference.
"We will do more U.S. dollar (bonds)," she said. "But we will still see a large proportion of our debt portfolio in sterling given that it's the home market and we are trying to establish ourselves as a gilt surrogate."
Gilts is the common term for U.K. government bonds.
The firm, which expects to have total debt of over £20 billion (sterling) by the end of March 2009, will also look at funding in yen.
Until now, the firm has only tapped the U.S. dollar, sterling, euro and Australian dollar bond markets.
Pitt said the AAA rated firm expects to raise between US$5 billion and US$7 billion equivalent in the coming 12 months.
This calendar year, the only bond it has sold is a £250 million (sterling) five-year bond.
Last year, the firm raised the equivalent of around US$13 billion.
The sterling bond saw strong demand from Asia with around 50% of the deal placed with the region's central banks and other institutions.
"The Asian central banks are very important investors to us but we are seeing other larger Asian investors who are looking to other AAA investment opportunities particularly if they want to diversify out of U.S. dollars."
Network Rail attracted increased interest from the region as well as from the Middle East from late 2004 when it was rated AAA by all three agencies, and from mid 2005, when it changed from having a government agency guarantee to a direct government guarantee.
"That has opened up our credit to a large number of other Asian central banks like Thailand, the Philippines and Indonesia, also Middle Eastern banks which could only invest in sovereign entities with a direct guarantee," said Maroudas.
He said Network Rail provided exposure to rare U.K. government risk outside of gilts and sterling, support from a direct government guarantee and has none of the privatization risk attached to much other European agency debt.
Network Rail has a financial indemnity until 2052 under which the U.K. government is obliged to make payments to cover any debt service shortfall.