Australian Gas Networks 2025 at CPI + 3.08%, AA rated

By Jenna labib

AGN operates natural gas distribution networks and transmission pipelines in South Australia, Queensland and the Northern Territory and the company’s networks distribute gas to households and businesses in Adelaide, Brisbane, Alice Springs and various regional centres in SA and Qld. A theme we’ve been discussing with investors has been the role of infrastructure assets within the portfolio and this falls within this camp.

Rated AA, the AGN 2025 inflation-linked bond is currently available at CPI + 3.08%. Although local inflation has been decelerating, if it averages ~4% over the next 2 years, this will mean a 7% annualised return for this bond. Being a 2-year tenor, AA-rated and senior secured with a forecast yield of 7%, will tick a lot of boxes for investors. Even if inflation moderates, with a 3% inflation assumption this bond will return 6.08% for the next 2 years, but of course if inflation is higher, they will return more, as it pays 3.08% over CPI.

You will note from the pricing table shown below that these bonds are available at a price of 162.23, which will look like a big premium to pay given investors will be more used to vanilla bonds which are issued at 100 and will repay on their maturity date at 100. As shown below, a 100k face value will cost approx. 162.4k. However, with capital-indexed bonds such as this one, the principal amount on which the interest is received changes with inflation. For the AGN, the current indexed capital value is 163.7. This will continue to grow with inflation and that is the amount against which interest is calculated each quarter.

At maturity, investors will receive the increased capital face value that has been indexed over the life of the security.

For more information on this opportunity, please contact your relationship manager.

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