News

Australia's bank funding landscape could be altered in favour of the domestic subsidiaries of international banks if the recommendations of the Senate's Economics Reference Committee final report on competition within the banking sector are adopted. The committee suggests the already-proposed reduction in interest withholding tax (IWT) levied on borrowing from international parents by local operations be extended to abolish the tax as soon as is economically feasible.

According to its submission to the Senate's Economic Reference Committee, the Australian Prudential Regulation Authority (APRA) does not believe Basel III capital and liquidity rules will be unduly onerous for Australian intermediaries. Meanwhile, the committee's report recommends a further widening of repo-eligibility to include the paper of all authorised deposit-taking institutions (ADIs) – regardless of credit rating.

The Senate's Economics Reference Committee final report on competition within the banking sector has shied away from recommending firm measures be put in place to correct the perceived under-allocation of the country's superannuation assets to fixed income. But it does acknowledge the issue and suggests a working group conduct further investigations to determine how it can be improved.

While the government guarantee on new wholesale borrowing has not been available to Australian banks for over a year, the Senate's Economics Reference Committee final report on competition within the banking sector believes there is still a value in its recommendation that the fee charged on outstanding guaranteed issuance be made equal across issuers. One regional bank believes an equalised fee alone would allow it to reduce home loan rates.

Rentenbank (AAA/Aaa/AAA) priced a A$200 million (US$215.4 million) increase to its January 2016 Kangaroo line on May 9, in what is the first Kangaroo transaction in almost a month. The tap adds to a line which was inaugurated in January this year, at a volume of A$375 million in the fixed rate tranche and A$425 million in the floating rate note (FRN). The FRN was subsequently increased in February, with the total line size now at A$1.2 billion.

Westpac Banking Corporation (Westpac) (AA/Aa1) launched a new May 2016 domestic issue on May 6, in what will be the second transaction to come from a major Australian bank this week. The deal will be Westpac's second public transaction of 2011, and is expected to price on the same day as launch.

Australia's domestic market slowly started to regain momentum in the first week in May with the completion of two bank deals. However, recent deal flow also demonstrates that, while domestic corporate bond issuance has reached new heights since the beginning of the year, the US alternative continues to offer certain issuers more favourable opportunities for funding in terms of tenor, volume and pricing, resulting in the first true corporate transactions after the holidays being placed offshore.

The first state budget of 2011 has been handed down, with the Victorian update necessitating Treasury Corporation of Victoria (TCV) (AAA/Aaa) to increase its funding programme to A$6.6 billion (US$7.1 billion) for the 2011/12 financial year – from a 2010/11 requirement of A$5.85 billion. The agency tells KangaNews it will continue to pursue long-dated domestic issuance while also monitoring opportunities in offshore markets.

On May 5 Bank of Queensland (BOQ) (BBB+/A2/BBB+) issued a A$200 million (US$214.8 million) 10-year, non-call five lower tier two (LTII) domestic bond issue. The transaction – which is the first domestic public bond issue in senior or subordinated format to come from an Australian regional bank this year – priced in line with guidance, at 375 basis points over the bank bill swap rate (BBSW).

The fourth increase to the New Zealand Debt Management Office (NZDMO)'s domestic bond programme for 2010/11 to be announced since December – and by far the largest of the four – should allow the agency to begin pre-funding for 2011/12. The NZDMO announced on May 3 that it has added a further NZ$3.5 billion (US$2.8 billion) to its programme for the current financial year, taking the total to NZ$20 billion.

With the past two weeks fragmented by a prolonged holiday break, all sectors of the Australian market have been predictably quiet. But issuance is expected to pick up in the coming weeks: intermediaries expect the credit market to shift back into gear soon although high-grade Kangaroo and bank deal flow may remain sporadic in the short term because of offshore holidays and reporting season factors.

The Australian market saw a quiet week in the run up to the Easter holidays with limited deal flow. By far the bigger news came when Standard and Poor's (S&P) put the AAA rating of the USA on negative outlook. While market participants believe the Australian market could be a beneficiary if global investors intensify their turn away from US debt, they also hope the warning will act as a catalyst for the US government to take action.