News

On November 27 Bendigo and Adelaide Bank (BEN) (BBB+/A2/BBB+) launched a non-government supported residential mortgage-backed securities (RMBS) deal with a minimum target size of A$500 million (US$457.85 million). The deal – which is expected to price on December 4 – will make BEN just the second Australian institution to bring an RMBS deal without government support this year.

Investec Bank Australia (Investec) (Baa2/BBB) increased the size of the Australian government-guaranteed five-year transaction it priced on November 27, eventually selling A$450 million (US$407.66 million) of fixed rate notes rather than the A$250 million indicative size at launch the day before. Investec has now issued A$1.05 billion in the Australian market in 2009, all under guarantee.

Despite a five-year basis swap in historically wide territory issuance in the Kangaroo market has slowed to a near standstill, with the 2019 maturity issued by KfW Bankengruppe (KFW) (AAA/Aaa/AAA) on November 26 being the first primary activity in the Kangaroo space since November 17. And while the current basis is favourable for offshore issuers, intermediaries say there are several factors – including continued volatility in the basis itself – constraining further activity.

Following a busy start to November, the new 2019 maturity bond priced on November 26 by KfW Bankengruppe (KfW) (AAA/Aaa/AAA) was the first Kangaroo transaction for over a week. And while October and November are now the busiest Kangaroo issuance months since early 2007 market sources say the window for potential issuance is narrowing – despite a favourable basis swap for offshore issuers.

On November 26 Investec Bank (Australia) Limited (Investec) (Baa2/BBB) launched its third Australian government guaranteed bond of 2009 – a five-year deal with a minimum target of A$250 million (US$232.4 million). ANZ Banking Group, Royal Bank of Scotland and UBS are joint-leads on the transaction, which is expected to price on November 27.

A comparison of 45 major global banks under Standard & Poor's (S&P)'s new risk-adjusted capital framework (RACF), published on November 23, ascribes to most – including the three Australian firms analysed – RAC numbers significantly lower than their published tier one ratios. S&P says the new assessment "illustrates our existing opinion that capital remains a neutral to negative rating factor for the majority of banks in our sample".

Capping a flurry of activity in the Australian corporate bond market, Volkswagen Financial Services Australia (VWFS) (A-/A3) priced a A$125 million (US$115.2 million) transaction on November 24 – the third corporate deal in two days. The three-year, fixed rate bond deal is Volkswagen's second of 2009 and priced at a margin of 200 basis points over swap.

Western Australia Treasury Corporation (WATC) (AAA/Aaa) achieved target issuance of A$1 billion (US$923.2 million) in its new July 2012 benchmark line on November 24 via a new money and consolidation tender on November 24. Although, WATC did not use syndication for the new deal it will still consider it for longer-dated or larger new line transactions in future.

A brace of corporate deals – from AMP Capital Wholesale Office Fund (AWOF) (A-, with an issue rating of A) and Caterpillar Financial Australia (Caterpillar) (A/A2/A) – priced on November 23, achieving upsized volume of A$250 million (US$229.7 million) apiece. Meanwhile a third deal, from Volkswagen Financial Services Australia (VWFS) (A-/A3) launched with an increase from a minimum size of A$100 million also expected.

While demand appears to be building, pricing on domestic bank deals continues to stagnate as indicated by Royal Bank of Scotland Australia Branch (RBS)'s (A+/Aa3/AA-) guaranteed A$2 billion (US$1.84 billion) fixed- and floating-rate February 2011 deal, which priced on November 20. The transaction came to market at 25 basis points over swap and bank bill swap rate (BBSW) – demonstrating little primary price action in over a month.

As deals continue to be brought to market the Australian asset-backed security (ABS) market is showing signs of renewed life and returning investor confidence. While participants say pricing is not yet tight enough for smaller mortgage providers to borrow at levels competitive with the unsecured funding of larger authorised deposit-taking institutions (ADI), there is shared optimism that something closer to parity can be attained and other names will enter the market in the coming months.

November 20 saw the second Australian corporate deal launch in two days as Caterpillar Financial Australia (Caterpillar) (A/A2/A) announced that it is seeking a minimum of A$150 million (US$137.78 million) in a three-year maturity transaction, with a target margin of 165 basis points over swap. Pricing on the transaction is expected on or before November 24.