Both foreign and local corporates are expected to tap the Australian Kangaroo bond market soon in order to satisfy investor demand, indicating that volumes are likely to surpass 2012’s.
Australian dollar bond from foreign issuers– also known as the Kangaroos – started the year aggressively as several issuers sought to access the market for financing given the country’s buoyant investor appetite for creditworthy names and suitable basis swap environment.
Wells Fargo issued a AUD900 million (US$946.3 million) two-tranche five-year Kangaroo bond on January 17. Additionally, supranational, sovereigns and agencies (SSAs) – which continue to dominate the market –took the opportunity to tap the market this month. Some of the names include German government backed development agencies Landwirtschaftliche Rentenbank and KfW Bankengruppe, the European Investment Bank, the Nordic Investment Bank and World Bank unit, the International Bank for Reconstruction and Development.
On the back of all this activity, syndicated bankers believe that will set a suitable foundation for corporates to begin accessing the market in a few weeks time post-release of financial results come February.
“Australian fund managers continue to seek diversification and corporates have historically represented a low proportion of issuance in the Australian dollar market. In that regard, corporate issuance particularly from high grade names will be very well received,” said Chad Karpes, head of debt capital markets and syndicate for Australia at the Bank of America-Merrill Lynch to Asiamoney PLUS on January 17.
Another Sydney-based senior syndicate debt origination analyst at an Australian bank agrees: “We anticipate that we will see some supply from the corporate space as early as next week and beyond that we think there is a reasonably healthy pipeline building both from domestic corporates and one or two offshore Kangaroo corporates.”
Market participants note that the Kangaroo market typically opens in a sequence every year, with SSAs typically leading the mark, followed by financials and then corporates.
Towards the end of 2012, the Aussie dollar bond market saw a few corporate names including BP which issued the largest Kangaroo – a five-year US$516 million note at a coupon of 4.5% in August –, Korea Gas and New Zealand Post, according to Dealogic data.
“I think the trend for me is that ‘AAA’-rated names continue to dominate the market but increasingly I expect corporates to take up a bigger piece of the Kangaroo supply in the second quarter onwards,” said a Sydney-based head of debt capital markets for Australia at a British bank to Asiamoney PLUS. “I think the corporate supply will exceed last year’s.”
In 2012, corporates issued a total of four Kangaroo bonds with a volume of US$980 million whilst SSAs sold a total of 68 notes with a volume of US$23.8 billion, according to Dealogic data. In 2011, there were no corporate bonds issued in the country.
Other factors that will continue to drive the Aussie dollar bond market include the fact that yields as expected to tighten as analysts believe that the Reserve Bank of Australia (RBA) will cut rates two to three times this year in order to spur declining growth.
The Commonwealth Bank of Australia predicts that rates will decline from 3% currently to 2.5% by the end of the year.
“We are anticipating another rate cut from the RBA, sometime in the first quarter rolling into the second quarter this year,” said the Sydney-based senior syndicate debt origination analyst. “Depending on how the economic data plays out, there is a possibility for another rate cut in third or fourth quarter.”
The basis swap market has also looked relatively appealing for foreign issuers of late. For example, the cost of cross-currency swaps (CCS) could be as low as 5bp for a lot of the bank names, noted DCM (debt capital market) bankers. Kangaroos issued by SSAs are a little bit more flat when compared to the US dollar market.