Hyundai grabbed investors’ attention last week by selling the first Kangaroo bond from an Asian corporate. National Bank of Abu Dhabi became the first Middle Eastern borrower to access the market in February. Several Koreans, both corporates and SSAs and mostly with single-A ratings, have also issued in recent months.
Aussie investors are a pragmatic bunch and there’s only one thing about these new names that interests them: yield.
What was once the main reason for the success of any Kangaroo deal — top-notch credit quality — has become conspicuously absent. The success of these latest deals at the far end of the curve came down to the excitement that a 4% return instilled in investors.
But while the appearance of new issuers in the market may be encouraging, the deal sizes have hardly inspired awe. If bankers want to get volumes up, then they need to put some yield on the table. After all, just two years ago, even mighty KfW was offering 6% for five year Kangaroo debt.
The idea of sub-triple-A issuers certainly isn’t unprecedented in Kangaroos. Even Spain’s Instituto de Credito Oficial — which Moody’s rated Baa3 at the time of its last Kangaroo trade in 2008 — has sold Aussie dollar debt.
Bringing that particular issuer back to the market might not yet be possible, but there are other issuers who might be able to entice investors with the promise of decent yields. As bankers like to point out, the triple-A club seems to be getting smaller every day.
Investors, especially the Asian accounts making up an ever bigger portion of the Kangaroo base, are looking for all the yield they can get, and they just aren’t going to get that from the market’s stalwarts. It’s time for some new blood.