Air NZ bond would fly, says analyst

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A bond issue by Air New Zealand would be well received, an analyst says, but the national carrier is staying quiet about speculation.

Interest.co.nz said it understood the 74.7 per cent Government-owned airline was testing the appetite of investors for a bond issue, although the type, term and amount were unclear.

Air New Zealand said it did not comment on rumour or speculation regarding financing.

Goldman Sachs' head of research Marcus Curley said a bond issue by Air New Zealand would probably be an effort to diversify the company's lending base.

"While they've got a lot of cash on the balance sheet they also have a reasonably substantial borrowing programme, which generally has been offshore," Curley said. "In addition they recently got an investment grade credit rating so I suppose that provides them with a better platform to access the New Zealand debt capital markets," he said.

"Obviously they've got the support of the Government shareholding which probably is very important in terms of the creditworthiness of the company."

Given that interest rates in New Zealand were relatively low on a medium-term basis, the NZX-listed airline could think the domestic market offered a reasonably cost effective way of diversifying the debt base, Curley said.

How well an issue would be received came down to the interest rate relative to the risk, he said. "Assuming that they [would] strike that at the right level then there's no reason why it wouldn't go well."

The Government plans to reduce its stake in Air New Zealand to 51 per cent.

"It [a bond issue] would be a good illustration of public acceptance in the name even though it would be a different instrument to an equity," Curley said.

"But I'd be surprised if that's what they're thinking. I'm pretty sure that given the make up of the Air New Zealand board that this will be based on the economics of their debt funding rather than any political aspirations."