Australian federal Treasurer, Wayne Swan, revealed the government's long-awaited banking system reforms on December 12. Among a raft of significant measures, Swan proposes that Australian financial institutions (FIs) should be allowed to issue covered bonds and that exchange trading of government bonds be introduced to help plans to develop a deep and liquid corporate bond market.
In line with plans revealed by the regulator at the end of November, on December 10 the Australian Prudential Regulation Authority (APRA) sent a letter to banks explaining its revised capital relief approach to securitisation. The new policy offers authorised deposit-taking institutions (ADIs) a deduction from tier one capital requirements relating to the volume of subordinated securitisation tranches they have to retain on balance sheet.
Australian market intermediaries are confident the level of investor appetite for corporate credit they have already seen in 2010 could double the year's issuance volume if enough deals are offered in domestic format. With local execution risk apparently fading as a concern among corporate borrowers, market participants believe issuance will come from a wider sphere of names – including the top tier of Australian corporates.
Wide Bay Australia (Wide Bay) has launched a new residential mortgage-backed securities (RMBS) deal, with an indicative volume of A$250 million (US$245.9 million) across four tranches. WB Trust 2010-1 is the third asset-backed deal to come to the market this week, following hot on the heels of the launch of a Bendigo and Adelaide Bank RMBS and an automotive asset-backed securities deal from Capital Finance Australia.
Australian Rail Track Corporation (ARTC) (Aa2) priced its inaugural domestic medium-term note (MTN) transaction on December 9, with the size of the issue increased to A$200 million (US$195.6 million) and its margin tightened by 5 basis points to 145 basis points over swap. The seven-year deal was launched a day previously at an indicative volume of A$150 million.
The asset-backed market continues to see activity in the last weeks of 2010 with two new deals launching in recent days and at least one more possibly to come before year end. The most recent residential mortgage-backed securities (RMBS) launch, from Bendigo and Adelaide Bank (BEN) on December 7, features an innovative capital structure with more than 50 per cent of the trade made up of a series of bullet tranches.
In a repeat of its issuance strategy at the back end of 2009, on December 7 Stockland (A-) announced the completion of a new A$150 million (US$148.3 million) five-and-a-half year bond offer. The new line priced simultaneously with the buyback of A$149 million of the company's outstanding 2011 and 2013 bonds, the overwhelming majority of which fell in the shorter-tenor notes.
As a record issuance year draws to a close, high-grade Kangaroo borrowers remain confident that 2011 will also see substantial Australian market issuance. Even so, there are suggestions the torch may not burn as brightly next year as market participants wait for current volatility to play out and predict a narrower – but still favourable – basis swap range than had been expected 12 months ago.
Dexia is in the process of updating Australian investors during the borrower's first visit to Australia since 2005, with the firm saying it hopes to be able to transact in the market in 2011. Dexia has previously sold triple-A rated Kangaroo covered bonds via its Dexia Municipal Agency (Dexia MA) entity, with A$1.52 billion (US$1.47 billion) of that paper currently outstanding in five maturities.
New South Wales Treasury Corporation (TCorp) added Barclays Bank (Barclays) to its capital indexed bond dealer panel on December 2, with the bank becoming the third addition to a TCorp panel this year. However, Barclays is the first new member of the inflation-linked panel, with the other two new firms both joining TCorp's nominal global and domestic dealer groups.
On December 8, National Australia Bank (NAB) (AA/Aa1/AA) completed an offer to buy back its March 2012, government-guaranteed fixed and floating rate line, having successfully retired A$730 million (US$718 million) of paper. Investors were offered a buyback price of swap flat, compared to the margin of 60 basis points over swap and bank bill swap rate (BBSW) when the bonds were originally priced in March 2009.
Australian fund managers say they are relatively unconcerned about the credit quality of domestic securitised paper, but their views on pricing and liquidity are still some way from making them cost-efficient funders of wider competition in the mortgage market. And while there is some optimism about the progress the market has made in 2010 real money managers also admit there is a long way to go.