Bullish economic projections released by the Australian government at the same time as the federal budget for 2010/11 have not yet been enough to spur a return to local primary market issuance. And while some market sources say new deals may be forthcoming in the near future as short-term volatility settles down, most also believe that risk appetite has been set back several steps by sovereign concerns.
Global demand for Australian Commonwealth government securities (CGS) has not been weakened by the developed market sovereign debt malaise according to the Australian Office of Financial Management (AOFM). With the domestic economy continuing to outperform, the debt management agency says it is confident it can complete its stable funding task for the 2010/11 financial year.
May 11 was a significant day for the development of retail corporate bonds in Australia, with the federal budget once again expressing government support for the market and adding a small tax incentive for investments. On the same day, the Australian Securities and Investments Commission (ASIC) published the results of its retail bond consultation and the updated version of its simplified prospectus regime for issuers.
For the third consecutive week, issuance markets in Australia and New Zealand were quiet as European sovereign debt concerns intensified and risk aversion took hold among global investors. However, there continue to be signs that – notwithstanding the explosive international volatility – confidence in domestic assets remains reasonably robust.
A low-doc predominant residential mortgage-backed securities (RMBS) deal was launched by Resimac on May 5, with the issuer saying it has been exploring a trade for the past year. Premier Series 2010-1 Triomphe Trust (Premier 2010-1) is the first new mainly low-doc offering in almost two years, with 69.9 per cent of the loans in the pool being low-doc and the balance full documentation.
Having updated investors in New Zealand and offshore on April 30, Telstra (A/A2/A) launched a Kauri deal on May 3 with the material details of the transaction in line with expectations. The issuer is seeking a minimum of NZ$100 million (US$72.8 million) with room to upsize to a maximum volume of NZ$250 million in a deal which is expected to price on May 6.
ANZ and the New Zealand Exchange (NZX) hope the new Local Authority Bond (LAB) Index launched on April 29 will become a benchmark for fixed interest investments in the local authority debt market. While investors say the index could be a useful information tool, the current setup of the market – with deal sizes often too small for inclusion in the index – means its adoption is likely to be a work in progress.
A denuded issuance week to April 30 was marked more by what did not happen in the Australian market than what did. With minimal domestic deal flow – by April 30 the week looked set to become the slowest for issuance in Australia so far in 2010 – investor attention was focused on three local corporates closing in on offshore transactions.
Sydney Airport Corporation (Sydney Airport) (BBB/Baa2/BBB) has announced plans to explore the possibility of refinancing a pair of credit-wrapped domestic bonds maturing in November 2011 and December 2012 with new, unwrapped paper. The issuer plans to meet investors in Melbourne and Sydney on May 5 and 6 before committing to the replacement offer.
Telstra (A/A2/A) has announced it will present to investors on April 30 ahead of a potential Kauri bond issue. The presentation, which is being arranged by BNZ, Commomwealth Bank of Australia and Westpac NZ, will be made to both domestic and offshore investors. Telstra, which has NZ$255 million (US$183 million) outstanding in two Kauri maturities having last issued in 2008, will use the proceeds of any deal to pay down New Zealand dollar commercial paper.
Broad-based demand for high-grade product denominated in Australian dollars – from both local and international buyers – drove hefty issuance in the week to April 23. Appetite was also strongly focused on long-dated paper: two Kangaroo deals of nine-year or longer tenor priced and the week's sole corporate transaction was a five-year deal, with credit investors once again expressing their willingness to go longer.
Export Development Canada (EDC) (AAA/Aaa) is the second agency roadshowing in Australia this week with the intention of becoming a regular Kangaroo issuer. The non-deal roadshow began in Brisbane on April 19 before heading to Melbourne and Sydney, with the issuer saying the maturing Kangaroo market now offers more consistent borrowing prospects.