Capital Rules to Ignite Australian Company Debt Sales, S&P Says

Australia’s corporate bond market may “take off” as the nation’s banks face pressure that may cap lending and companies seek to satisfy growing bond-investor appetite, according to Standard & Poor’s.

“Local bond financing is becoming more price competitive, and corporate treasurers are looking to diversify their term funding away from banks,” John Bailey, managing director at S&P Australia, said in a report today. “Reforms imposed on banks in the wake of the credit crisis are putting pressure on their capacity to lend.”

Australian non-financial companies are selling the most bonds locally in four years as investors seeking alternatives to bank debt become more willing to buy longer-dated notes. Mirvac Group, APA Group and Telstra Corp. are among firms that raised A$3.7 billion ($3.5 billion) from Australian dollar bonds this year, the most since 2006, according to data compiled by Bloomberg.

Australian companies have traditionally steered away from selling bonds at home, with non-bank issuers accounting for 6 percent of total long-term domestic bonds outstanding, S&P said. A more diversified market would boost the economy, and give companies another funding source should another credit crisis freeze bank lending, a government-appointed panel said last year.

“The corporate bond market has a strong chance of taking off over the next few years if we continue to push ahead with more structural reforms,” the S&P report said.

The Basel Committee on Banking Supervision on Sept. 12 made it more expensive for banks to lend to riskier borrowers by raising the cost of the capital they’re required to set aside against the loans. The new rules follow regulations known as Basel II, which are being adopted now and require lenders to allocate more capital against higher-risk loans.

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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