News

Relative pricing and globally-conducive market conditions combined in September to allow Australian corporate issuers to execute on planned funding diversification strategies. European markets in particular proved to be a focal point for issuance, with issuers and intermediaries saying market tone has been sufficiently positive to allow borrowers to place deals wherever their funding needs can best be matched.

At its October meeting, the Reserve Bank of Australia (RBA) elected to keep the cash rate at 2.5 per cent – a move predicted by all 33 economists in a Bloomberg survey ahead of the announcement. HSBC data says markets were also convinced of a hold decision in advance, with this being 95 per cent priced in.

The Australian Office of Financial Management (AOFM) says it saw strong support from offshore investors for its syndicated inflation-linked bond issue priced September 26. The development of an offshore primary bid for AOFM linkers has steadily increased from previous transactions.

Standard & Poor's Ratings Services (S&P) downgraded its ratings on the state of Western Australia (WA) and Western Australian Treasury Corporation (WATC), to AA+ from AAA, on September 18. S&P believes the state government has "limited political will" to fully implement its fiscal action plan which, in the context of a current debt burden "at the high end of the domestic peer group", has spurred a downgrade.

Korea South-East Power (KOSEP) issued its first-ever Kangaroo deal on September 12 in what was the year's third transaction into the Australian market from a Korean borrower, and the second from a Korean corporate. Joint lead managers on the deal say strong demand for seven-year tenor brought the borrower to the market.

Increased buy side demand for floating-rate product and shorter maturities convinced World Bank to simultaneously bring its debut benchmark floating-rate Kangaroo and tap its fixed-rate November 2016 notes. With interest in both formats driven by reverse enquiry, intermediaries say there may be similar issuance opportunities ahead.

Market recovery and strong investor demand for securitisation issuance saw two new deals, from AMP Bank and Macquarie Group, price in the first week of September. Joint lead managers agree the pipeline for further issuance is strong, but acknowledge a shift in residential mortgage-backed securities (RMBS) distribution weighting towards bank balance sheet participation.

Australian investors say the downgrade of old-style tier-two debt announced by Moody's Investors Service (Moody's) on September 5 does not reduce the value they see in the asset class. Fund managers continue to believe the pre-Basel III subordinated issuance of, in particular, domestic big four banks is a value hold. They do not anticipate any price action in the wake of the downgrade.

Wesfarmers says its recent domestic deal secured on properties leased by the firm to its subsidiary, Bunnings Group (Bunnings), achieved important capital-management objectives for the issuer. But while the deal's arrangers point to strong domestic and offshore demand for the transaction, they acknowledge the issuer features that made it appeal to buyers are also likely to restrict the range of credits which might follow Wesfarmers' lead.

August volume from high-grade issuers in the Kangaroo market confounded expectations of a slowdown around European summer. Particularly notable is increased demand at the long end of the curve for triple-A rated assets. But while longer maturities currently offer investors the yield they are seeking, the sacrifice for some borrowers in terms of all-in cost remains too great.

Latin America's first ever Kangaroo issuance opens the door for fellow issuers although intermediaries are doubtful that a flurry of similar deals will follow. Following its debut deal on August 21, Corporación Andina de Fomento (CAF) says this is the first step to becoming a frequent issuer in the Kangaroo market after it established an A$2 billion Australian MTN programme last month.

Japanese demand for Australia dollar (AUD) issuance appears to have rebounded, which analysts and intermediaries attribute to two macro factors: relative stability between the Australian dollar and the yen, and improved yields. In addition to continued demand from life insurance investors, interest from Japanese asset managers – especially at the long end of the yield curve – has also rebounded.