Oil major BP to make Australian-dollar bond debut in rare kangaroo offer

 Wed Aug 29, 2012 12:33am EDT
* Deal expected to raise $519 million
* Joins exclusive club of offshore borrowers
* Cross-currency swap rate encourages debt deal
SYDNEY, Aug 29 (Reuters) - British oil company BP Plc is looking to sell an inaugural Australian dollar bond issue in a rare "kangaroo" offer, bringing a fresh industrial face to a market crowded with financial and sovereign borrowers.
Kangaroo bonds refer to Australian dollar bonds sold by international issuers in Australia. Offshore borrowers have been historically reluctant to raise Australian-dollar funds because of the limited scale of the nation's bond market.
The five-year kangaroo issue, due to price later on Wednesday, is expected to fetch around A$500 million ($519 million), according to a source who has seen the deal's terms. It will likely pay a margin of around 115 basis points over the Australian bank bill rate.
Greg Stock, a portfolio manager at Perpetual Investments which manages A$4.5 billion in fixed income assets, welcomed the offer.
"It's a global household name and it is very good to see diversification in Australia," he said, adding the issue margin was around fair.
The offer, to be issued by BP Capital Markets, joins a selective club of non-bank/non-government kangaroo borrowers. British telecom company Vodafone is the only other international corporate issuer that has tapped the A$367 billion Australian bond market, ADCM and ThomsonReuters data show.
"Historically, international borrowers, excluding banks, had limited interest in Australia mainly because of the relative smaller size of our market and pricing," said Gus Medeiros, credit strategist at Deutsche Bank.
"But domestic demand appears to be improving for selected names, with the basis swap helping on pricing, enhancing the position of Australia as an alternative."
Encouraging BP is a favourable move in the Aussie-U.S. dollar cross-currency basis swap rate, a key instrument used by international borrowers because it reflects the cost of converting funds from Australian dollars to U.S. dollars.
Still, bond deals from non-financial and non-government borrowers in Australia account for only 11 percent of the amount outstanding, according to ADCM data.
The BP offer is said to have drawn interest from Australian funds as well as interest from offshore, high net-worth investors, the person who has seen the issue said.
Perpetual's Stock particularly appreciated a one-year gap that BP allowed between its roadshow visit and the actual bond offer, as it allowed him to better assess the company's ongoing litigation issues.
In April 2010, BP's Deep Horizon oil platform exploded in the Gulf of Mexico, killing 11 workers and sparking the biggest U.S. oil spill in history.
"The passage of time was beneficial," he said.
BP is rated A by S&P and A2 by Moody's and its offer is jointly led by ANZ and UBS.