News

Name-specific responses to the European sovereign debt crisis in the Australian dollar market have led the largest Kangaroo borrowers to adopt contrasting issuance approaches. European Investment Bank (EIB) (AAA/Aaa/AAA) has reduced its Kangaroo activity in response to pricing relativities, while KfW Bankengruppe (KfW)'s (AAA/Aaa/AAA) consistent issuance volume has seen it take over as the market's biggest borrower.

In a week overshadowed by global turmoil, just one deal priced in the Australian public markets. On the other side of the Tasman, World Bank (AAA/Aaa) issued a new Kauri deal on August 3 as market participants report that Kauri pricing levels have become more attractive in recent times. However, with investors' name-specific appetite divergent what remains uncertain is which borrowers are most likely to be able to seize future issuance opportunities.

KfW Bankengruppe (KfW) (AAA/Aaa/AAA) launched and priced a A$300 million (US$320.2 million) increase to its February 2018 Kangaroo on August 4. The tap is the third increase to the line, which was introduced in February 2011 at a size of A$500 million and now has A$1.55 billion outstanding.

World Bank (AAA/Aaa) priced a new NZ$300 million (US$258.7 million) five-year Kauri transaction on August 3, in what was its first deal in New Zealand's domestic market since July last year. New Zealand market participants say potential pricing for Kauris has grown closer to economic levels in recent times, although there has so far been just NZ$900 million issued in the format this year.

While Australian domestic banks await the final passage of legislation that will allow them to issue covered bonds, the Kangaroo market for covered bonds is experiencing steady growth. Four issuers have priced five deals so far this year for a total volume of A$2.9 billion (US$3.2 billion).

On July 27 International Finance Corporation (IFC) (AAA/Aaa) issued its first Kangaroo deal of 2011 with a new A$1.25 billion 5 per cent August 2016 bond and A$250 million of 2016 floating rate notes. The A$1.25 billion fixed rate tranche is the biggest Kangaroo deal issued since World Bank issued a A$1.5 billion 5.75 per cent 2015 bond in February 2010.

Rentenbank (AAA/Aaa/AAA) issued a A$500 million (US$551.9 million) increase to its April 2018 Kangaroo line on July 28, in what was the agency's first Kangaroo transaction in almost three months. It was the first tap to the line, which was inaugurated in April 2011 at a size of A$250 million.

What began as another quiet week in the Australian primary bond markets evolved into moderate deal flow across various sectors towards the end of the week. With a number of issuers reporting significant levels of reverse enquiry, sizeable issuance continues to be achievable as offshore interest in Australian dollar product appears strong.

In the two weeks since details of Australia's forthcoming carbon tax were announced, strategists have broadly concluded that the tax will be manageable for both directly-affected businesses and the wider economy. With some sectors expected to benefit from the new scheme, some economists say the net result could be neutral or even positive for GDP growth – though they also foresee a larger-than-projected inflationary impact.

Commonwealth Bank of Australia (CommBank) (AA/Aa2/AA) launched and priced a new A$2.5 billion (US$2.7 billion) five-year deal on July 21 in what was the first domestic benchmark transaction from a big four bank since mid June. The self-led deal was also the issuer's first transaction in the domestic market since January 13, when it priced A$2.5 billion of July 2015 notes at 105 basis points over swap.

KfW Bankengruppe (KfW) (AAA/Aaa/AAA) issued a A$550 million (US$590.1 million) tap to its May 2021 Kangaroo on July 21, taking the total amount outstanding in the line to A$1 billion. The line was introduced in May and is the longest point of the agency's Kangaroo curve.

Canadian Imperial Bank of Commerce (CIBC) (A+/Aa2, with covered bond programme ratings of AAA/Aaa/AAA) priced a new Kangaroo covered bond on July 21. The deal is CIBC's third Australian dollar covered bond, following the issuer's debut A$750 million (US$806.8 million) three-year transaction in October 2010 and, more recently, a A$700 million five-year issue in March this year. The latter was the first five-year covered bond transaction to price in the Australian market post-crisis.