Dutch utility company Gasunie used its strong credit rating as a springboard to returning to the market with €300m bond issue in collaboration with ING, ABN Amro and Rabobank. David Wigan reports.

Janneke Hermes

Janneke Hermes

Coming back to the market for the first time in two years in October 2018, Dutch state-owned gas infrastructure company Gasunie ran into a storm of market volatility as companies across Europe pulled capital market deals amid concern over the Italian economy and global stock markets in risk-off mode. The company took the decision to go ahead with a €300m bond, the proceeds of which would help it fund its capital investment programme and meet redemptions.

Gasunie operates a transmission and pipeline grid across much of northern Europe and provides liquefied natural gas (LNG) and storage facilities. At the centre of its infrastructure operations is its ‘gas roundabout’, built in 2014 to link areas across the Dutch, UK and German markets. The roundabout ensures that gas can be transported and traded as LNG (in the Netherlands and the UK) as it moves mainly from Russia and Qatar to the Netherlands, Germany, Belgium, Norway, Denmark and the UK. In early 2018 the company announced plans to build Europe’s largest green hydrogen production plant in the north of the Netherlands, in partnership with paint and chemical maker Nouryon.

Reputation counts

“Our strategy is built on three pillars,” says Gasunie treasurer Janneke Hermes. “We aim to provide safe, sustainable and affordable gas transport. We want to facilitate energy transition and the reduction of carbon dioxide by innovating in areas such as green gas, hydrogen, heat networks and carbon capture and storage. Finally, we strive to make a valuable contribution to efficient gas infrastructure and services in the European gas and LNG market.”

The company has invested heavily in its gas roundabout, says Ms Hermes, and this year it plans to move forward with a project to build a nitrogen facility near Zuidbroek that will transform high-calorific gas for domestic use. The plant is expected to come online in 2022 following an investment of between €500m and €550m. It will facilitate a reduction in gas extraction from the Groningen field, which has seen a number of earthquakes over recent years.

Gasunie’s state ownership and AA-/A1 credit rating puts it in a strong financial position. It funds itself via a €7.5bn medium-term note programme and loans from the European Investment Bank. It also has a fully untapped revolving credit facility and commercial paper and other money market instruments, and its debt-to-total assets ratio is about 40%.

“We are comfortable with the 40% level, which gives us room for investment,” says Ms Hermes.

Given the volatility in the markets around the time of its proposed bond issue, the company might have been forgiven for having second thoughts. However, it relied on its solid reputation to keep its head as those all about were losing theirs. 

“There was a sense that with the rest of the market reluctant to issue, there was an opportunity for us,” says Ms Hermes. “The last time we issued was just after Donald Trump’s election, so maybe these very volatile periods work for us.” In addition, the company was keen to go ahead to ensure it maintained its liquidity ratio at its target level, and to offset a redemption in the same month.

No roadshow needed

Gasunie spoke to its bankers at ING, ABN Amro and Rabobank (who were joint co-ordinators and bookrunners) in mid-September. It felt it did not need to do a physical roadshow, instead relying on its annual investor call and a digital roadshow, which it posted on its website. It eventually decided on October 8 to come to market.

“We knew we were going for a 10-year, €300m no-grow, and working with our banks decided on initial price talk of mid-swaps plus 60 basis points,” says Ms Hermes. “However, the order book grew quite quickly to more than four times our target number, so we knew we could tighten.”

Pricing was revised to mid-swaps plus 40 to 45 basis points, a chunky reduction but one that appeared not to do too much damage to demand.

“We lost a few orders but we also continued to see more coming in,” says Ms Hermes. “In the end we priced at mid-swaps plus 40 basis points. It was quite difficult to find a comparison in the market but we reckon we paid a new issue premium of two to five basis points, which we felt was OK given that we have been out of the market for two years and the macro environment.”

The bond did not move in secondary markets, reflecting the buy-and-hold nature of most investors: a case of Gasunie of knowing its strengths and picking the right moment to take advantage.

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