News

An International Monetary Fund (IMF) working paper exploring the capital adequacy of Australian banks has acknowledged the strong position of the domestic majors. While the report also suggests Australian banks would be broadly resilient to a shock in the mortgage market larger than they are likely to experience, it also recommends consideration of even higher capital requirements for systemically-important local banks.

Australian Postal Corporation (Australia Post) (AA+) launched and priced its first domestic transaction in almost three years on January 25. The new A$280 million (US$294.6 million) five-year deal was upsized from a launch volume of A$200 million and priced 10 basis points tighter than its indicative margin at 130 basis points over swap.

APA Group (APA) (BBB/Baa2) has become the first Australian energy utility to issue a yen transaction in several years having priced a Y$10 billion (US$123.7 billion), 6.5-year deal on January 24. The proceeds of the 1.226 per cent coupon transaction have been exchanged for A$125.9 million that will be repaid at a 6.8 per cent coupon.

In wake of the first corporate deal of the year, bankers say they believe flow will increase with true corporate borrowers predicted to move away from the loan market and into the capital markets. While corporate demand, both locally and internationally, remains strong, increasing costs of offshore issuance may make also the domestic bond market a more attractive option for borrowers in 2012.

The week beginning January 16 saw the first Australian dollar deals of the year from domestic issuers. The first-ever covered bond from a domestic major bank was issued, and another is soon expected to come to market. The first Australian corporate deal of 2012 was also priced.

Westpac Banking Corporation (Westpac) has issued a A$3.1 billion (US$3.3 billion) Australian dollar covered bond transaction. The transaction is the second domestic deal issued by a major bank, following a A$3.5 billion dual-tranche deal issued by Commonwealth Bank of Australia on January 17.

In the wake of the state of Queensland's mid-year budget update the state's treasurer, Andrew Fraser, tells KangaNews in an exclusive interview that maintaining the fiscal discipline required to regain a triple-A rating remains a policy goal of the government. Measures towards this goal have led to an improved budget and funding position, even as Queensland approaches a state election in 2012.

The issuer and lead managers of the first domestic covered bond from an Australian bank say the deal's pricing was appropriate to both a new asset class transaction and offshore comparables. The issue margin was notably wider than secondary spreads on Australian major bank senior unsecured paper, but deal participants point to the huge volume of the covered bond transaction and its wide investor base as proof of its successful execution.

The most recent round of downgrades to European sovereigns by Standard & Poor's (S&P) – most significantly affecting the ratings of Austria and France – has caused A$2.45 billion (US$2.54 billion) of supranational, sovereign and agency (SSA) Kangaroo paper to lose its AAA status. The second largest Kangaroo borrower, European Investment Bank (EIB), has maintained its top S&P rating albeit with negative outlook.

Lead managers on the A$350 million (US$363.9 million) new four-year Kangaroo priced on January 17 by Industrial Bank of Korea (IBK) (A/A1) believe banks from Asia – especially Korean names – will seek to emulate the success of the upsized transaction. Although a clutch of Asian financial institutions priced domestic deals via their Australian branches in 2011, IBK's issue is the first true Kangaroo from an Asian credit since May 2007.

Commonwealth Bank of Australia (CommBank) has become the first Australian bank to issue a home-currency covered bond, having completed a A$3.5 billion (US$3.6 billion) transaction in the week beginning January 16. CommBank recently made its covered bond debut in the euro market, pricing a €1.5 billion (US$1.9 billion) five-year deal on January 4.

The January 12 transaction placed by KfW Bankengruppe (KfW) (AAA/Aaa/AAA) illustrates the ongoing reality of wider Kangaroo pricing for European supranational, sovereign and agency (SSA) issuers than is available in other benchmark markets. KfW says its strategic view on the Australian dollar made it happy to bring the transaction, which was predominantly sold to international investors.