News
Strong Australian dollar deal flow continued in the second full week in May with deals priced from a range of Kangaroo and local borrowers; the New Zealand market remained quiet. New Zealand and Australian budget announcments this week saw a host of activity from the ratings agencies.
On May 17, Qantas Airways (Qantas) (BBB-/Baa3) priced an increase to its April 2020 line. The increase is the first tap to a line which was issued in April with a volume of A$125 million (US$122.79 million) and pricing of 295 basis points over swap.
On May 17 Asian Development Bank (ADB) (AAA/Aaa/AAA) became the latest issuer to take advantage of conducive Kangaroo issuance conditions, as the supranational priced an increase to the July 2017 bond it introduced last year. ADB plans to increase the bond's fixed-rate line, which currently has A$900 million (US$889.2 million) on issue; it also has a A$200 million floating-rate tranche.
An improving budgetary position in New Zealand – including a reaffirmed projection of a return to surplus in 2014/15, ahead of Australia's latest projections – allowed the New Zealand Debt Management Office (NZDMO) to lower its funding requirement for the next two financial years. Analysts suggest the NZDMO's funding strategy could significantly reduce nominal tender supply in the coming year.
KfW Bankengruppe (KfW) (AAA/Aaa/AAA) priced its first Kangaroo transaction since early March on May 16, revealing plans to add to the A$1.4 billion (US$1.37 billion) currently on issue in its July 2018 line. KfW introduced its July 2018 Kangaroo in a A$1 billion issue in January this year, and the only previous tap was the agency's most recent foray into the Kangaroo market.
Standard & Poor's (S&P) removed its corporate rating on Santos from negative credit watch on May 16, affirming the company at BBB+ albeit with a negative outlook. The firm was placed on negative watch following the removal of high equity credit from its €1 billion (US$1.3 billion) hybrid note on April 2, but S&P has concluded the firm is sufficiently resilient to justify retaining its rating despite the consequent weakening of its credit metrics.
AMP Bank (A/A2) priced a four-year Australian dollar bond transaction on May 15, in what will be the issuer's second domestic deal of the year. Having priced A$500 million (US$499 million) of three-year floating-rate notes on March 6, 2013 is already AMP Bank's most active year in terms of public Australian dollar volume issued since 1999. Last year the bank sold A$450 million in two issues, including a A$150 million lower tier two deal.
The steady recent stream of issuance in the Kangaroo market continued on May 15 as Nordic Investment Bank (NIB) (AAA/Aaa) priced an increase to its April 2022 bond. The majority of Kangaroo deal flow in volume terms in recent days has come from credit issuers, but NIB's mandate is the third supranational, sovereign and agency Kangaroo to be announced since May 9.
On May 15, Rentenbank (AAA/Aaa/AAA) priced an increase to its 2023 Kangaroo line. The tap is the fourth increase of the line which was introduced in January 2013 at a volume of A$400 million (US$398.97 million) and pricing of 111.5 basis points over Australian government bonds.
The Australian Office of Financial Management (AOFM) revealed on May 15 that it expects to place a new April 2025 benchmark government bond in the week beginning May 20. The government debt management agency also updated its funding plans for the year ahead on the back of a Commonwealth budget that disclosed a significant deterioration in the federal position.
Analyst and rating agency response to Australia's federal budget is broadly supportive given the context of significantly weaker revenues and the consequent prolonged period of deficit. However, some economists believe little has been done to address structural weaknesses, especially on the revenue side, which further reduce the chances of a balanced budget position on average across the economic cycle.