The Kowloon-Canton Railway Corp. (KCRC), a railway operator in Hong Kong, may enter interest-rate swaps in which it pays floating because it anticipates that interest rates will continue to fall. Jeffrey Cheung, deputy finance director in Hong Kong, said the corporation will consider entering swaps on the back of a 10-year USD1 billion 8% global bond it issued in March last year.
Over the last 18 months KCRC has entered cross-currency interest-rate swaps to convert part of the bond proceeds into both fixed and floating Hong Kong dollars, said Cheung. He added that as the operator's revenues are all in Hong Kong dollars, its policy is to convert some 70% of the 10-year U.S. dollar-denominated bond issue to Hong Kong dollars via swaps.
KCRC "is very closely monitoring" the fixed/floating interest-rate swap spread and may enter a swap in which it receives 8% fixed and pays floating if the spread narrows to below LIBOR plus 140 basis points from current levels of LIBOR plus 165bps.
The rail operator's counterparties include Bank of America, Citibank, Credit Suisse First Boston, Hang Seng Bank, HSBC and J.P. Morgan.
