News
Two new deals from KfW Bankengruppe (KfW) and Inter-American Development Bank (IADB) priced this week, joining a recent run of supranational, sovereign and agency (SSA) Kangaroo issuance. Market participants say strong demand and a conducive basis swap is keeping deal flow steady, although lower funding requirements and repeat issuance from a number of borrowers will likely keep volume moderate for the rest of 2013.
The three Australian major banks to have issued annual results between October 29 and November 4 all reiterated the same story that has characterised capital and funding efforts since the financial crisis. Deposit funding continues to creep upward and wholesale issuance has fallen – though at least one of the majors suggests its aversion to wholesale issuance growth might change in response to future credit growth.
In its annual report the Australian Office of Financial Management (AOFM) characterises its 2012/13 financial year as one that it has spent focusing on the long-term development of the Commonwealth's funding portfolio in the face of challenges which it also expects to continue in 2013/14.
Participants at KangaNews's Corporate Bond Summit, which took place in Sydney on October 29, say the local corporate bond market has reached a new level of functionality in 2013. Confidence is high, and while challenges remain the eyes of issuers and investors are now on broadening and deepening the market rather than ascertaining its relevance.
On October 29 the Australian Office of Financial Management (AOFM) announced the sale of some holdings of residential mortgage-backed securities (RMBS) issued by ING Bank Australia in 2011 and 2012. The AOFM tells KangaNews the sale was conducted in order to assist secondary market price discovery.
Aurizon Network (BBB+/Baa1) says it selected the local market for its record-breaking capital markets debut because it was competitive with offshore alternatives. Meanwhile, Australia's domestic investors attribute the solid demand with which the deal was met to the relative scarcity of non-financial Australian dollar issuance.
The 2013 Melbourne Mercer Global Pension Index, which surveys and ranks the pension systems of 20 nations, suggests the greatest weakness of the Australian setup is its insufficient incentive or mandate to convert retirement benefits into income streams. Overall, Australia's pension system ranks third among its international peers in the Mercer study, despite scoring just two marks out of 10 in the income-stream area.
Supranational entities in which the US holds substantial equity stakes insist the ongoing US legislative showdown, which could in a worst-case scenario cause a technical default on US sovereign debt, will not significantly affect their status. The issuers also say their investors have not raised questions about any potential impact of the US situation on supranationals' creditworthiness.
Virgin Australia has diversified away from more the traditional financing product favoured by airlines – the sale and leaseback – to become the first Australian-origin issuer to issue enhanced equipment notes (EENs). The issuer says it is only the fourth non-US domiciled airline to bring this type of structure and, while other Australasian carriers could follow, market participants suggest the possibility of the transaction being quickly repeated is slim.
Relative pricing and globally-conducive market conditions combined in September to allow Australian corporate issuers to execute on planned funding diversification strategies. European markets in particular proved to be a focal point for issuance, with issuers and intermediaries saying market tone has been sufficiently positive to allow borrowers to place deals wherever their funding needs can best be matched.
At its October meeting, the Reserve Bank of Australia (RBA) elected to keep the cash rate at 2.5 per cent – a move predicted by all 33 economists in a Bloomberg survey ahead of the announcement. HSBC data says markets were also convinced of a hold decision in advance, with this being 95 per cent priced in.
The Australian Office of Financial Management (AOFM) says it saw strong support from offshore investors for its syndicated inflation-linked bond issue priced September 26. The development of an offshore primary bid for AOFM linkers has steadily increased from previous transactions.