Corporations in Australia and Japan could face problems refinancing over the next few years, as continuing global uncertainty may lead to increasing competition and more demanding terms from investors, according to a report by Standard &Poor’s (S&P).
“If investor confidence declines significantly, companies - especially speculative-grade ones - could find a less interested audience that demands less favourable terms for issuers. Moreover, attractive investment alternatives are plenty outside of Australia and Japan and corporations will likely face stiff competition from essentially every part of the world,” said Diane Vazza, managing director at S&P New York and author of the report.
Australia’s financial and non-financial corporations have almost US$448 billion in debt maturing between them from now until 2016. Corporations in Japan have US$419 billion to pay.
The majority (US$146 billion) of debt maturing in Australia before 2016 comes due in 2013. Considering that new issuance has been slowing, it is evident that investor appetite for the country’s debt has fallen, said the report. About US$3 billion was issued in April and US$7 in May, down from US$18 billion and US$22 billion in February and March.
“[The] issuance level has declined markedly in the second quarter as concerns about Greece, Spain and Italy increased. The decline highlights investors’ sensitivity in recent years to the challenges the global markets have been facing,” said Vazza.
In Japan, the story is similar. A majority of the total debt (US$106 billion) will fall due in 2013. However, new bond issuance in the country has remained somewhat more buoyant than in Australia. In the first quarter, it averaged more than US$13 billion a month, slowing slightly in April to US$9 billion but it picked up in May to nearly US$13 billion.
According to Vazza, the risks attached to such large amounts of corporate debt falling due, depend on the global situation.“Global challenges continue to hamper investor demand. These challenges include the continued uncertainty in some parts of Europe and the Middle East, the prospect of a harder-than-expected landing of China’s economy, and the still sluggish global economic growth.”