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Gillard Law to Encourage Corporate Bond Market in Australia

Australia plans to ease disclosure requirements for companies selling bonds to individual investors, in a bid to direct more of the nation’s A$1.4 trillion ($1.5 trillion) in pension savings into local debt.

Treasury released draft legislation outlining changes to the Corporations Act today, allowing borrowers to sell notes using a shorter prospectus. The changes will bring “currently onerous” disclosure requirements for bond sales in line with requirements for share offers, Acting Treasurer Penny Wong said in an e-mailed statement.

Australia’s banks and some of its biggest non-financial companies rely on offshore bond investors to fund their operations, with the nation’s borrowers raising $70.7 billion last year from debt denominated in currencies other than the Australian dollar, according to data compiled by Bloomberg. Australia’s pension funds have about half their assets in stocks, the highest proportion among 29 nations tracked by the Organization for Economic Cooperation and Development, according to a report released in September. Their holdings of bills and bonds were the lowest after South Korea.

“Australia has a population that is transitioning superannuation savings from growth phase to retirement phase, resulting in demand for assets that offer a fixed stream of income, such as bonds,” said Andrew Gordon, director of fixed-income origination at FIIG Securities Ltd. in Sydney. “The government wants Australia to be a financial hub, and a deeper market where more companies can issue in Aussie dollars is an important part of that.”

Less Paperwork

The changes will allow companies to issue bonds using a shorter, offer-specific prospectus as long as they have released a more detailed prospectus in the past three years, and have a good record of continuous disclosure, according to the statement. The government also plans to change directors’ liability for offers of simple corporate bonds, it said.

“A vibrant corporate bond market is key to harnessing our national superannuation savings and enabling us to domestically fund more productive investment in our economy and in turn reduce our reliance on offshore wholesale funding markets,” Wong said in the statement.

Even after the changes, the local bond market will need to compete to attract issuers, as global counterparts offer longer-term debt and more certainty that the deal will be completed smoothly, said James Hayes, head of fixed income in Sydney at BNP Paribas SA.

“Until the domestic market provides the same attributes the offshore markets will continue to be a very attractive alternative,” he said.

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