It looks like being an olympic year for the Australian market. Non-syndicated issuance in Australian dollar last quarter topped volumes in the currency for any quarter last year, as shown in quarterly reports, page 5. And Australian issuers bounced back into the private market with a record level of issuance in the same period. A steady flow of new names have emerged out of Australia in recent months and dealers say there's much more to come. Traditionally banks have dominated Australian issuance, but a shift is taking place as an increasing number of corporates look to the Euromarket. An Australia specialist, at Merrill Lynch, says: "Most of corporate Australia is rated triple-B so historically it was considered high-yield and was shut out of the Euromarket. Australian borrowers had to rely on the yankee market. But now, as the credit spectrum is opening up, Australian names are offering an interesting geographical alternative for Euromarket investors." Fosters Brewing Group (FBG) is the latest Aussie name to sign. Its euro500 million ($481.63 million) facility, finalized in February, could lead the way for more Australian corporates. Seng Tan, vice-president in the treasury at FBG, believes the Euro-MTN platform is a good option for corporates. He says: "Any corporate, Australian or otherwise, wishing to access the global capital markets for competitively priced funding cannot ignore the burgeoning Euromarket. Also, the growing convergence in pricing between bank and non-bank funding will make corporates which have not previously accessed public bond markets gravitate towards it." Yet some dealers believe many Australian corporates can't justify signing."There are very few large corporates in Australia which have need for even euro500 million. I would question how much issuance can grow from the sector," says one dealer. Some Australian corporates have concerns that European investors won't have lines open for their credit. Yet many dealers claim the response from buyers has been good. Salomon Smith Barney (SSB) was the most active dealer off Australian programmes in 1999. Chris Lees, vice-president, debt capital markets, at SSB, in Sydney, says: "The experience we've had with Australian issuers looking to access European investors is that they've been very welcoming. Many have not held Australian names in the past, but were happy to look into the credits." Westpac Banking Corp (Westpac) has the most debt outstanding off its two facilities than any Australian borrower in the market. It had a strong first quarter, although to date, has done only two trades in euros. Jonathan Minor, head of global funding at Westpac, explains the bank's strategy. He says: "In the last four years we've tended to focus on the public market. We wanted to get our credit profile accepted, especially in Europe and Asia. But this year our plan is to be as flexible as possible and concentrate on the private market. We particularly want to push for structured transactions. My only reservation is will there be sufficient demand for that." Westpac highlights its commitment to being responsive by having round-the-clock supervision of its Euro-MTN facilities. Minor, at Westpac, says: "Our aim is to have someone dealers can speak to 24 hours. We have coverage in Australia, New Zealand and London, so dealers don't have to wait for a response from us. It has definitely paid off having this infrastructure in place." But other banks and corporates without such resources could find themselves losing out to European issuers which might be quicker to meet European buyers' demand. However, Lees, at SSB, points out that most European corporates don't have 24 hour desks either, and that they suffer in other areas. He says: "Australian issuers have got the advantage over their European counterparts when it comes to many privately-placed deals, because they're working in the same time zone as Japan, which is where a large portion of demand for opportunistic trades comes from." On the buy side changes in the Australian investor base could have a big impact in the next few years. Australian investors are becoming increasingly open to international debt as government issuance declines and the domestic pool of issuers becomes limited. Some originators believe a kangaroo MTN programme is the best way to tap this Australian cash. An arranger at Merrill Lynch, says: "A Euro-Australian dollar deal will not penetrate as deeply into the Australian investor base as far as a kangaroo issue. There are a growing number of fund managers in Australia looking for new credits and for international names" But Lees, at SSB, thinks the trend will be in another direction. Telecom Corporation of New Zealand, which signed a $1 billion facility last month, via SSB, included a clause in its programme which allows issuance under Australian law. Lees says: "The legal framework has substantially caught up with market needs. We're seeing more issuers now putting an Australian option into their Euro-MTN documentation at the outset. This allows them to issue under Australian law - in Australian dollars - and clear through Austroclear. This permits the same degree of access to the Aussie market without the additional burden of setting up a separate Australian MTN programme."
August 04, 2000
