News
For the second year running, J.P. Morgan Chase (A+/Aa3/AA-) has launched the first unsecured financial institution (FI) Kangaroo deal of the year, with the bank pricing a new A$600 million (US$604.6 million) five-year transaction on March 9. The same issuer reopened the benchmark FI Kangaroo market post-crisis with a A$1 billion (US$1 billion) five-year deal priced on March 4 2010.
Woolworths (A-/A3) priced a new five-year domestic bond deal on March 7, the same day as launch, in the issuer's first transaction in the domestic market since 2006. The deal priced at 105 basis points over swap, 5 basis points inside its indicative margin, and with volume of A$500 million (US$506.1 million).
The liquidity of supranational, sovereign and agency (SSA) Kangaroo bonds continues to be a hot topic in the wake of the asset class's non-inclusion in the Australian Prudential Regulation Authority (APRA)'s recent determination on liquid assets. The two largest SSA Kangaroo borrowers believe the turnover in their Australian dollar paper – even during the financial crisis – is the equal of all but the highest volume-issuing semi-governments.
On March 3, Commonwealth Property Office Fund (CPA) (A-/A3) completed a partial buyback of its June 2011 maturity and simultaneous new A$200 million (US$203.1 million) five-year fixed rate issue. The buyback reduces the original volume of A$140 million on issue in the fixed rate tranche by A$107.5 million, and the A$60 million of floating rate paper by A$50.5 million.
The Royal Bank of Scotland Australia Branch (RBS Australia) (A+/Aa3/AA-) issued a new A$1.7 billion three-year dual-tranche domestic bond on March 3, which was upsized from a launch volume of A$500 million. The issuer visited the Australian market twice last year when it inaugurated a A$1.5 billion (US$1.5 billion) dual-tranche line in August and subsequently increased the fixed rate piece by A$300 million one month later.
Market response to the Australian Prudential Regulation Authority (APRA)'s determination that no asset classes will qualify as level two assets for liquidity coverage ratio (LCR) purposes in Australia has been mixed, with a small immediate pricing impact and divided opinions on the prospects for covered and Kangaroo bonds' eventual inclusion.
The Kangaroo covered bond market could see a leap in issuance in 2011 with supply expected to come from a similar range of borrower jurisdictions as has been seen in the US, according to HSBC Bank (HSBC). At a covered bond forum the bank hosted in Sydney on February 23, it predicted Kangaroo issuance for the current year could reach A$12 billion (US$12.2 billion), up from A$750 million – in a single deal – in 2010.
A number of transactions from financial institutions (FIs) outside the Australian big four have hit the domestic market in the past few weeks, accompanied by reports of price tightening and large levels of oversubscription. Some market participants believe investors are simply chasing yield while waiting for more corporate issuance to emerge, but others believe there is reasonable demand for FI product in its own right.