Westpac Banking Corp. climbed to top position among bond arrangers in Australia as offerings by the federal government, states and companies propelled the market to its busiest month on record.
The Australian Office of Financial Management and New South Wales state opted for syndicated sales to open new bond lines this year, helping to push Westpac’s 2013 market share to 18.9 percent, surpassing the 14.4 percent for Australia & New Zealand Banking Group Ltd., the No. 1 arranger in 2012, data compiled by Bloomberg show. Thirty-four borrowers sold A$18.4 billion ($17.5 billion) of bonds in May, the most in data compiled by Bloomberg since 1999.
Issuers including Queensland state and National Australia Bank Ltd. have sought to lock in borrowing costs near the lowest level in almost six years following the quietest start to a year since 2009. Offerings still trail 2012 even as total sales in the U.S. run at a record pace.
“The federal government via AOFM, which doesn’t often syndicate new bonds, did a big chunky transaction and we’ve also seen a few of the states doing syndicated deals in addition to their usual offerings,” said Peter Dalton, the Sydney-based head of syndicate at Westpac. “There’s also been a really good selection of different names coming, across so many different sectors.”
A surge in bond maturities last month gave investors more cash to spend, according to Dalton. The Australian government repaid A$16.7 billion to investors on May 15, part of a record A$29.5 billion of debt that fell due last month, Bloomberg-compiled data show.
Monetary easing by central banks from Washington to Tokyo has also helped to repress interest rates globally, spurring investor appetite for higher-yielding debt.
Westpac was the only domestic bank involved with managing the A$4 billion sale of 2025 federal government bonds on May 22, the biggest nominal bond transaction on record by the sovereign. It was the first time a local bank had been named as a lead manager by the federal authority, with Citigroup Inc., Deutsche Bank AG and UBS AG also working on the deal.
Australia’s oldest lender joined Commonwealth Bank of Australia in managing New South Wales’ A$2.5 billion sale of three-year floating-rate notes on March 26. Westpac, which still tops the 2013 bond rankings if debt-raisings for its own treasury are excluded, was sole arranger for Western Australia’s A$400 million sale on May 29 and for Toyota Finance Australia’s A$300 million deal on Feb. 18.
Westpac announced last week that it had appointed John Chauvel as head of debt capital markets. Dalton joined the lender from Royal Bank of Scotland Group Plc in December.
While ANZ has helped manage transactions for a greater variety of borrowers this year than Westpac, the average size of those deals has been smaller.
The Melbourne-based bank, which topped bond rankings for three straight years ending 2012, was involved in debut Australian issues this year for Hyundai Capital Services Inc. and National Bank of Abu Dhabi PJSC, and was a manager of Korea Finance Corp.’s second-ever Aussie deal last month.
“There continues to be strong demand for Australian dollar assets globally despite lower rates and a more volatile market,” said Paul White, the global head of ANZ’s debt syndicate in Sydney. “Our continued focus has been on offering diversification for both issuers and investors and bringing new credits to the market, particularly from Asia.”
The record Australian bond sales last month eclipsed the A$17.7 billion of issuance in March 2010, the next biggest period in Bloomberg data. The state and federal government deals were joined by A$1.325 billion in sales by Westpac and A$1.2 billion from National Australia Bank Ltd.
Bank of America Corp. and JPMorgan Chase & Co. led a surge in foreign issuance, raising A$850 million apiece.
“The Aussie bond market has patches where it’s busier and times where it drops off a bit, so when the market is strong you want to be in the flow,” said Westpac’s Dalton. “We’ve seen issuance across all sectors and that’s been pushing up volume across the market this past month.”
Deutsche Bank is the leading arranger among foreign banks in the Australian market this year, climbing one place to displace UBS for fifth position. It is ranked first among underwriters of Kangaroo bonds, Bloomberg data show. The Frankfurt-based lender has also been involved in recent months with sales for Qantas Airways Ltd., Bendigo & Adelaide Bank Ltd. and Treasury Corp. of Victoria.
“Deutsche Bank has gained market share as a broader range of borrowers have entered the Kangaroo market,” said Grant Bush, head of capital markets and treasury solutions in Sydney. “While Australian-domiciled borrowers historically often chose to use domestic players because of commercial considerations, more recently they have seen how getting an objective global perspective from us can enable them to tap the deep pools of offshore demand.”
Nomura Holdings Inc. climbed eight places to 12th, the biggest increase among last year’s top 20 arrangers. Japan’s biggest securities firm is making a concerted push into the Australian dollar market, Andrew Macgonigal, its head of debt capital markets in Sydney, said in an interview last week.
The average yield premium over government debt for a broad index of Australian bonds dropped to 48 basis points last month, the least since August 2007, according to Bank of America Merrill Lynch data. It was at 50 basis points yesterday.
Benchmark 10-year bond yields were at 3.36 percent as of 9 a.m. in Sydney, having rebounded from their 2013 low of 3.01 percent. The Australian dollar was at 95.23 U.S. cents after dropping 8.2 percent since the end of April.
The Reserve Bank of Australia this week kept its key lending rate at a record-low 2.75 percent, having implemented a quarter-point cut last month. Swaps data compiled by Bloomberg indicate an 85 percent chance that the RBA will lower its benchmark by at least another 25 basis points by year-end.
The spate of new bonds in May followed a lackluster start to the year, which saw the lowest volume of bond sales through banks since 2009. Even with last month’s issuance bonanza, the A$51.3 billion of notes issued this year is still less than the A$52 billion sold at this stage in 2012.
Westpac’s market share this year has increased from 17.9 percent in 2012, while ANZ’s dipped from 18.8 percent, according to Bloomberg-compiled data. Commonwealth Bank climbed to third position in 2013 with 13.4 percent, while National Australia Bank slipped to fourth even as it boosted its share to 12.2 percent.
“Both the rate markets and credit markets have been active in terms of primary supply this year,” said ANZ’s White. “It’s still relatively early in the year, but liquidity and new issuance have been healthy so far and assuming the underlying markets are supportive we would expect that to continue.”