News
Standard & Poor’s (S&P)’s decision to downgrade the state of Queensland and its funding authority, Queensland Treasury Corporation (QTC), to AA+ may not be the first in a wave of downgrades to Australian semi-governments, although the rating agency acknowledges there is “only downside risk” in state revenue projections.
The ongoing difficulty of refinancing residential mortgage backed securities (RMBS) in troubled capital markets has caused Challenger Securitisation Management (Challenger) not to exercise early call options on three of its outstanding deals – a decision which some investors believe has further set back the already dislocated asset-backed market.
On February 20 Macquarie Bank (Macquarie) (A-/A2) priced A$1.1 billion (US$702 million) of February 2014 bonds guaranteed by the Australian government. This is the first public domestic deal from the bank in this format, after a privately-placed A$500 million October 2013 trade issued in December last year.
Facing the forthcoming expected conversion date of A$875 million (US$559.2 billion) of hybrids issued by the recently-acquired St.George Bank (St.George) on March 31, Westpac Banking Corporation (AA/Aa1) (Westpac) announced the launch of a new tier 1 (T1) hybrid security on February 20.
New South Wales Treasury Corporation (AAA/Aaa) (TCorp) re-entered the foreign currency funding market on February 18, pricing £250 million (US$356.7 million) of 30-year fixed rate bonds. The issuer also filled a February 20 fixed date tender of a further A$100 million (US$64.2 million) of its 2025 maturity capital-indexed bonds.
On February 18 Suncorp-Metway (A/Aa3) (Suncorp) tapped the £550 million (US$784.5 million) 4 per cent January 2014 government-guaranteed bond it first issued on January 11, bringing the total on issue to £750 million. The increase was led by the same group that brought the inaugural bond – Citigroup, Deutsche Bank and RBC Capital Markets (RBCCM).
Bank of New Zealand (AA/Aa2) (BNZ) priced the first deal from a New Zealand bank to be covered by the domestic sovereign guarantee on wholesale funding on February 18, bringing NZ$180 million (US$91.9 million) of five-year paper at 80 basis points over five-year mid-swap.
Investec Bank (Australia) (Baa1/BBB) (Investec) priced A$200 million (US$127.9 million) of 2014 bonds covered by the Australian government guarantee on February 18, becoming in the process the first triple-B rated issuer to bring a five-year transaction with sovereign backing in the local market.
Appetite for government guaranteed bonds from Australian bank issuers showed no sign of letting up in the past week with domestic and Japanese investor providing the bulk of the US$4.02 billion equivalent raised in total, headlined by benchmark Australian dollar and yen deals from Commonwealth Bank of Australia (AA/Aa1) (CommBank) and ANZ Banking Group (AA/Aa1) (ANZ) respectively.
Commonwealth Bank of Australia (AA/Aa1) (CommBank) successfully priced its combined guaranteed and unguaranteed twin maturity Australian domestic deal on February 12, but the respective size of the two segments demonstrated the extent to which the investor base still favours sovereign-backed paper.
Australian government guaranteed issuance spiked up again last week led by Westpac Banking Corporation (AA/Aa1) (Westpac)'s massive yen transaction – the largest ever by an Australian issuer at ¥245.3 billion (A$3.97 billion). Total Australian guaranteed issuance reached the equivalent of US$4.01 billion in the week – almost double the previous two weeks combined.
The vibrant New Zealand corporate bond market hit a new peak on February 5 when Fonterra (A+/AA-) announced a firm allocation of NZ$800 million (US$412.88 million) in its 2015 domestic transaction. The very success of the trade – the largest corporate deal in New Zealand history – has raised questions of its own, with market participants expressing concern about secondary liquidity and the impact of such a large deal on ongoing primary demand.