IFR International - 03.11.2018

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It warned continued declines could put

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The rating threats come amid worries

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US$1.2bn of cash was on the balance sheet.

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trading in line with Double B rated credits.

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further logistics issuers in the sector.

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swaps plus 150bp area to launch at 135bp.

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NatWest Markets.

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This view is starting to change.

“Their entrance into the Green bond

market helps showcase how this asset class

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The REIT’s green pitch focuses on its aim

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involved in the green market as such issuers

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BONDS CORPORATES

Aussie corporate bond

bid wanes

„ CORPORATES Alternative markets, depleted offshore bid contain local

corporate supply

Australian corporate bond supply has almost

halved from its 2017 record-breaking pace as

competitive alternative markets and a much

reduced offshore bid hold back issuance.

In the first 10 months of 2018 domestic firms

raised A$7bn (US$5.04bn) in the Australian

bond market against A$13.5bn in the same

period last year, while corporate Kangaroo supply

fell from A$3.8bn to A$1.95bn.

“The local corporate bond market is being

squeezed by the booming US private placements

at the long end and by the increasingly liquid

and competitive syndicated loan market at the

short end,” said Brad Scott, director for corporate

debt capital markets at National Australia Bank.

Much of this year’s contraction has its roots

in the shifting US/Australia rates differential,

which has dented overseas, especially Japanese,

demand for 10-year-plus Australian dollar paper,

a segment many Aussie funds consider a step

too far from their traditional five-year sweet spot.

Crucially, Australian Commonwealth

Government bonds no longer hold an absolute

yield advantage over the highly liquid US

Treasury market, a benefit they had enjoyed since

June 2000.

On January 1, ACGB 10-year yields still

offered a 21bp pick-up over 10-year Treasury

yields. But the former are now 50bp lower than

comparable US Treasuries (2.66% versus 3.16%

last Thursday), with the spread having steadily

compressed from a near 300bp peak in 2008.

Such a reversal has understandably reduced

the international bid for long-term Aussie dollar

paper, which in turn makes the accessible and

relatively cheap US private placement market an

even more compelling destination for Australian

companies seeking long-term funding.

2018 has been an unusually busy year for the

US private placement market with US$46.2bn

raised in the first half of the year alone.

Australian and New Zealand companies,

primarily from the utility, industrial, property and

infrastructure sectors, made up US$4.85bn of

this total for a 10.5% market share.

This represents the largest supply from any

country outside the US besides the UK, which

had 12.3% of the market in H1 2018, according to

the Private Placement Monitor.

More recently, Sydney Airport announced on

October 8 it had completed a A$400m four-part,

dual-currency US private placement comprising

US$45m 15-year, A$135m 20-year, A$100m 25-

year and A$100m 30-year notes.

Also in October, Victorian desalination plant

Aquasure privately placed a US$325m 15-

year amortising bond with a 10-year average

life, while GPT Wholesale Office Fund priced

US$250m of 13-year and 15-year notes.

The private placement market holds particular

appeal to companies seeking small-size

US$150m–$350m multi-tranche deals usually

at tenors of between 10 and 15 years, but often

alongside longer maturities.

One notable exception to this size “rule” is

privatised New South Wales utility Ausgrid, which

smashed cross-border records with a US$1.9bn debut

sale in August 2017 to pay off a A$2bn bridging loan.

Meanwhile, at the other end of the curve,

as bond syndicate teams are forced to shorten

duration they are encountering aggressive

competition from the syndicated loan market,

whose ranks have been swelled by returning

international banks that had left Australia or

reduced their presence during the financial crisis.

“There is certainty no shortage of liquidity at

the moment with increased competition driving

down bank lending rates to attractive levels in the

dominant three and five-year segment, particularly

for the infrastructure and utility sectors where many

borrowers benefit from Asian parentage,” Scott said.

John Weavers