News
Green-bond issuance in Australia is growing, though supply remains dominated by high-grade and bank issuers. Local investors say labelled issuance is only one part of a more complex picture, which sees the Australian buy side wrestling with measuring the impact of its allocations in an environment of growing demand for ethical investment.
In November 2018, KangaNews brought together experts in sustainable debt from each of Australia’s big-four banks to discuss the state of the local market and its growth prospects in the year ahead. Participants acknowledge that development has not been exponential so far but point to a vast quantity of work going on behind the scenes and the challenges involved with changing attitudes, working without reliable political guidance and establishing market infrastructure.
The Kauri market saw its first deal of 2019 on 16 January when World Bank priced a NZ$400 million (US$270.7 million), five-year deal. Deal sources say offshore interest in Kauri deals has waned but robust domestic participation and low relative yield are accommodative to issuers.
Western Australia (WA)’s economy is continuing an upward trajectory, with increased mining revenues and a favourable reallocation of goods and services tax (GST) among the main drivers of fiscal improvement. The state is now forecasting a fiscal surplus in 2019/20, one year earlier than expected.
Investa Commercial Property Fund (ICPF) has closed a A$170 million (US$122.3 million) green loan having tagged its entire asset portfolio against the Climate Bonds Initiative (CBI) low-carbon-building criteria emission thresholds. The facility is bilateral with ANZ, but the borrower says green loans should be able to find new liquidity and pave the way for more downline green-bond issuance.
ANZ Banking Group (ANZ) became the first non-UK bank to execute a sterling covered bond referencing an alternative benchmark rate on 11 January. The deal also takes Australian-issuer engagement with alternative reference rates a step further, as the longest maturity – and by far the largest – deal to reference an alternative benchmark printed by an Australian issuer to date.
The New Zealand Financial Markets Association (NZFMA) has opened a consultation period on the idea of supplementing – though not replacing – the existing bank-bill reference rate (BKBM) with an overnight risk-free rate (RFR). The goal is better to align the New Zealand market with evolving global norms, specifically the International Organization of Securities Commissions (IOSCO)’s principles for financial benchmarks.
In the wake of 2019’s first benchmark Kangaroo deal from a euro-based funder in 2019, the issuer – European Investment Bank (EIB) – says Australian dollar economics are currently challenging for euro funders but opportunities are available.
Two of Australia’s major banks are underway with their funding for calendar 2019, with one domestic and one offshore transaction printed. The issuers say ongoing market volatility remains front of mind as they enter the new year, and was factored into their market choices – but at this stage it is not expected to affect their broader funding strategy.
Proposed new capital-ratio requirements for New Zealand’s banking sector are causing frustration in the local debt market as participants grapple with a raft of potential consequences. While financial institutions have grown accustomed to increases in capital requirements in the post-financial crisis era, market participants say the wider implications of such a significant shift are largely unknown.
The US private placement (USPP) market has arguably been the preferred bond-funding option for Australian corporate borrowers for many years. Market participants acknowledge Australian issuers’ closer ties to USPP than credits from comparable jurisdictions, and say demand evolution in the US means there is little chance of a change in issuance habits.
In late November 2018, KangaNews hosted its annual roundtable discussion for Australian fixed-income strategists. At the end of a turbulent year for markets and geopolitics, the discussion was unusually wide-ranging – taking in factors as diverse as the long-term status of the US dollar as global reserve currency, the duration of the Australian housing-market decline and the credit-supply outlook.