Ampol Hybrids

Ampol Hybrids (Baa3)

What’s Happened?

Ampol agreed to sell its Gull business in New Zealand to Allegro Funds for an enterprise value of NZD572m (AUD534m). This transaction was important for Ampol in closing out the AUD3bn acquisition of Z Energy due to potential competition issues in New Zealand. Net proceeds will be used to partially fund the Z Energy acquisition. Post-sale of the Gull business, credit metrics will be back within Moody’s 2-2.5x net leverage target.

Ampol’s FY21 results showed EBITDA turning around quicker than first anticipated, driven by the global energy shortage. The Lytton refinery performed exceptionally well despite weaker retail operations.

Heading into H1 2022, Ampol will also realise a sizeable inventory gain as Brent crude prices have risen. However, an elevated crude price will hurt its retail margin. Nonetheless, it will be more positive for the company given the larger segment revenue from fuels and infrastructure (as opposed to retail).

IAM View

Ampol is a solid credit and the structure is good for investors. If not called in year 5.33, investors can convert to equity – which mitigates any non-call risk. Coupon also steps up by 100bps in year 10.33. There is a CoC call at 101 (requires downgrade to HY) and if not called, coupon steps up by 500bps.

Compared to the broader BBB-band, non-financial corporates sphere, the Ampol 81s look relatively cheap. Post-sale of the Gull business, there is low downgrade risk for the Ampol 81s.

Terms

Subordinated, with deferral (but cumulative) coupons
Coupon of 3mBBSW + 340bps
Issuer redemption upon a Change of Control Event
Coupon step-up upon a Change of Control Event
First call in March 2027, with final maturity of February 2081 (unless redeemed earlier)
First step-up date in March 2032 (3mBBSW + 440bps, or 100bps increment)
Equity credit: Moody’s (50%) and S&P (50%)

Relative Value

Both of Ampol’s hybrids offers good value, but especially the Ampol 81s.

Chart 1. Relative Value

Source: Bloomberg

Chart 2. Comparable Bonds

Source: Bloomberg

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