Tuesday 08 July 2014 by FIIG Research Legacy

Australian corporate bond market – a summary of 1H14 issuance

Key points:

  1. According to Bloomberg data, a total of A$23.79n debt was issued domestically in 1H14 versus A$19.61bn in 1H13
  2.  As the US continued to offer cheap funding opportunities, significant issuance of A$39.77bn in public and private placement deals for  corporate market were achieved; 1.65 times more than that issued in the Australian corporate domestic market

Issuance activity in the debt capital markets remained steady throughout 1H14. According to Bloomberg data, a total of A$23.97bn debt was issued domestically in 1H14 (by Australian entities in AUD currency), excluding Australian government and semi-government compared to A$19.61bn in 1H13. The lowest volume was recorded in January (A$0.90bn) while May contributed the most to the first half 2014 volumes with A$5.23bn issuance.  According to the Reserve Bank of Australia, private sector credit grew by 4.7% in the 12 months through May 2014, which was the fastest annual pace since March 2009. Australian corporate issuers (excluding financials) sold mostly bonds with maturities of seven years while the US dollar and Euro markets provided scope for longer dated debt in 2014.

Activity in the RMBS market was better in the 1H14 compared to 1H13. Overall, 1H14 RMBS issuance totalled 16 deals worth A$16.026bn (Australian tranches only) well ahead of 1H13 with 12 deals and A$11.61bn issued. Biggest issuers for 1H14 were Commonwealth Bank of Australia (Medallion Trust) with A$2.51bn, Westpac Banking Corporation (WST 2014-1) with A$2.5bn, Macquarie Securitisation Limited (PUMA 2014-1) with A$1.4bn, ING Bank Australia (IDOLT 2014-1) with A$1.25bn and Resimac (Resi 2013-1X) with A$1.22bn.

According to Bloomberg data, offshore issuance in GBP, USD and EURO currencies by Australian companies rose to (A$59.59bn) in the 1H2014, up 31% from 1H13. This was the strongest first half since 1999. Banks issued bonds offshore three times faster than local sales as demand from US and European investors cut costs. The big four banks were tapping overseas markets as credit growth in Australia accelerated to the fastest rate in the last five years, buoyed by central bank interest rates at a record low. Bloomberg’s complied data revealed that Australia’s local bond market is dominated by the big four banks that sold A$12.6bn of notes in the 1H14 versus A$11.3bn in 1H13. The cost of shifting funds from dollars and Euros into the Australian currency fell in the 1H14, while credit spreads in the US and Europe have tightened. JP Morgan noticed a very strong demand from both European and US investors for credit products and Australia is viewed very favourable as a place to invest. Australia’s central bank benchmark rate is at 2.5%, while those in Europe and the US are near zero. According to Bloomberg data Australian ten year bonds yielded 3.55% compared with 2.53% for equivalent US securities and 1.25% for similar German bonds.

As the US continued to offer cheap funding opportunities, significant issuance of A$39.77bn in public and private placement deals were achieved. Westpac was the leading offshore borrower of US dollar denominated deals from January 2014 to June 2014 and raised US$7.58bn of debt, which was closely followed by Macquarie with US$6.71bn.

However, Euro and GBP issuances were well below USD issuances with A$14.99bn and A$4.83bn volumes respectively over the first half of 2014. The biggest issuers of Euro denominated bonds were: Westpac with €2.21bn, Sydney Airport, the largest non financial borrower in the 1H14, which sold €718.27m of ten year notes in April 2014, Brambles, the world’s largest supplier of wooden pallets raised €500m selling ten year securities in June 2014. The biggest issuers of GBP denominated bonds were: CBA with A$1.20bn, followed by NAB and Macquarie with A$1.04bn and A$0.46bn respectively.

Table 1