ANA bond sale raises higher-than-expected 30b yen
[TOKYO] ANA Holdings Inc's victory over rival Japan Airlines Co in bidding for international flight slots from downtown Tokyo helped the nation's largest carrier triple the size of its first bond sale in two years.
Demand for the 10-year bond offering on Feb 28 exceeded expectations, helping the company raise 30 billion yen (S$367.5 million) at a record-low yield of 1.22 per cent, versus the originally planned issuance of 10 billion yen, ANA's spokesman Hideya Oishi said.
That compares with a 1.46 per cent average for similar-maturity debt sold by Japanese corporate borrowers, while companies worldwide pay 4.7 per cent, according to Bank of America Merrill Lynch index data.
The carrier forecasts profit will double next fiscal year as it adds flights to London, Paris, Vancouver and other overseas destinations from Tokyo's Haneda airport this month.
ANA won more than double the number of new international slot pairs as JAL from Asia's second-largest air hub, helping make up for tax breaks for the rival which emerged from bankruptcy in March 2011.
Prime Minister Shinzo Abe earlier this week said that the government's aid for JAL won't damage industry competition.
"ANA is expanding international flights at Haneda, which is going to help profits," said Yusuke Ueda, a Tokyo-based credit analyst at Bank of America Merrill Lynch. "They have exceptionally good cash flow and are close with the ruling Liberal Democratic Party. That makes their bonds good to buy."
The Tokyo-based airline will get 11 new daytime take-off and landing slots from Haneda at the end of March, compared with five for Japan Airlines, the Transport Ministry said in October.
JAL protested against the decision but was unable to win more. ANA, seeking to ease its dependence on domestic operations, is also expanding its fleet of Boeing's more fuel-efficient 787 planes for international routes.
ANA cited the Haneda flights in targeting 60 billion yen of net income in the year to March 2017, from 30 billion yen next fiscal year and 15 billion yen in the current period, according to the company's mid-term business plan released on Feb 14.
It forecasts operating margin will increase to 7 per cent from 3.8 per cent as the airline reduces costs by 50 billion yen, adding to 86 billion yen in savings over the past four years.
"The company has entered a cycle where high level investments into business growth can be compatible with maintaining fiscal health," Kazuma Ogino, a credit analyst at Nomura Securities, wrote in a report dated Feb 20. "Concerns about its financial standing are on the decline."
Tokyo's Haneda airport restarted intercontinental flights three years ago after opening a new international terminal. The country moved overseas flights to Narita, 70 kilometres east of Japan's capital, more than three decades earlier to cut down on overcrowding.
The cost to insure the debt of ANA has retreated 22 basis points in the past month to 157 yesterday, according to data provider CMA. That compared with the 8.5 basis-point decline for the Markit iTraxx Japan index, while the gauge for North American companies slid 10.5 in the period.
Japan Airlines, the nation's second-largest carrier, emerged from bankruptcy after cutting about a third of its staff, grounding 103 planes and reducing its flight network.
Its monopoly on flights out of Japan ended in 1986, when a crash that claimed 520 lives prompted the government to grant ANA its international licence.
JAL received 35 billion yen of tax relief in its first full year after exiting bankruptcy and may not have to pay corporate levies until 2020, according to the Liberal Democratic Party.
The government is considering tightening restrictions on corporate-tax breaks on losses and shortening the number of years they apply, the Nikkei newspaper reported on Feb 4. - Bloomberg
