Australian non-financial companies are selling the most bonds locally in four years while extending maturities as investors seeking alternatives to bank debt become increasingly willing to buy longer-dated notes.
Mirvac Group, APA Group and Telstra Corp. are among firms that raised A$3.7 billion ($3.6 billion) from Australian dollar bonds this year, the most since 2006, according to data compiled by Bloomberg. Seven issues had maturities of six years or more compared with one in 2009, the data show.
“One of the lessons we’ve learnt from the crisis is that the financials are not always going to be the best bet,” said John Sorrell, who helps manage about A$14 billion of fixed- income assets as Sydney-based head of credit at Tyndall Investment Management Australia Ltd. “It’s better to diversify into corporates, and if we’re going to attract them we need to be more flexible in offering longer maturities.”
Financial companies and top-rated overseas borrowers issued about 78 percent of the A$89.9 billion in corporate notes sold in Australia this year, Bloomberg data show. A more diversified and liquid bond market would boost the economy and give companies an extra funding source to turn to if another global financial crisis froze bank lending, according to the findings of a government-appointed panel.
Non-financial companies are issuing bonds with maturities as long as 10 years compared with typical tenors of between three and five years, according to Sorrell, who said he’s using new issues to rebalance portfolios that have as much as 80 percent of assets in financial company debt.
APA, whose pipelines carry more than half Australia’s natural gas, raised A$300 million from 7.75 percent bonds in July that were the first BBB rated 10-year notes ever sold in Australia by a non-financial company, Bloomberg data show.
Mirvac, a Sydney-based real estate investment trust, sold A$200 million of six-year notes priced to yield 8.015 percent on Sept. 22, according to a sale document. The yield fell to 7.965 percent yesterday, according to Australia & New Zealand Banking Group Ltd. prices on Bloomberg.
Telstra, Australia’s largest phone company, sold its first domestic bonds since 2006 in June, raising A$150 million from 10-year notes. The securities were priced to yield 7.825 percent and yielded 7.2 percent yesterday, ANZ prices show.
Australian investors asked for the issue, which “follows on from long-dated deals by Telstra in euros, Hong Kong dollars and New Zealand dollars,” Patrick Mullins, global co-head of capital markets origination at sale manager National Australia Bank, said at the time of the offering.
Australian money managers are showing “an increased willingness to buy longer-dated corporate debt,” said Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia Ltd.
Bank of America Corp., UBS AG and HSBC Holdings Plc are among overseas banks that sold notes in Australia this year, while Australia’s four biggest lenders issued a combined A$20.4 billion of securities, Bloomberg data show.
The extra yield investors demand to own Australian dollar financial company bonds instead of similar-maturity government debt has fallen 1 basis point this quarter to 215 basis points, or 2.15 percentage points, according to Bank of America Merrill Lynch’s Australian Financial Index.
The spread on bonds in Merrill Lynch’s Australian Industrial Index, which includes debt issued by Mirvac and Telstra, narrowed 10 basis points to 228 in the same period.
Australian companies may seek to sell more bonds as lenders’ borrowing costs rise, spurring them to demand higher interest margins on loans, Royal Bank of Scotland Group Plc analysts wrote in a Sept. 27 report.
The average yield premium on Australian banks’ bonds may increase by as much as 25 basis points by the end of 2011 as they replace maturing debt with more expensive funding, the Reserve Bank of Australia said last month.
APA’s sale and a Sept. 22 offering of A$550 million in five-year bonds by DBNGP Finance Co., the finance unit of a gas pipeline venture in Western Australia, show “substantial investor demand for a correctly-priced corporate deal,” Bayley said. “From an issuer standpoint this gives them a viable alternative to shorter-dated bank loans.”
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