Turmoil in China Gets Australian Bond Issuers to Think Localby
Offshore bond sales down 26% this year, local issuance up 30%
China concerns helped drive spreads wider earlier in 2016
Australian companies are finding there’s no place like home as they sell foreign bonds at the slowest pace since before the global financial crisis.
Issuers borrowing offshore have sold the equivalent of just $25.8 billion of securities this year as of Monday, 26 percent less than the comparable period in 2015 and the slowest start to a year since at least 2009, according to data compiled by Bloomberg. Domestic offerings by banks and other companies have risen 30 percent to A$19.5 billion ($15.1 billion) over the same time.
“Spreads for Aussie issuers have come under a little bit of pressure and to that extent they’ve probably retreated,” said James Arnold, head of the Australian dollar syndicate at Citigroup Inc. in Sydney. Banks in particular “have been able to get quite a lot of funding done in the domestic market at probably more efficient levels,” he said.
Concern a slowdown in China would derail global growth drove a surge in financial market volatility at the start of 2016, prompting a credit cost blowout in the U.S. and other markets. A collapse in prices of iron ore and other commodities also weighed on international investor appetite for Australian assets, which is starting to return.
National Australia Bank Ltd. has been the leading offshore issuer this year, followed by Commonwealth Bank of Australia and Macquarie Group Ltd. Sydney Airport and phone-service provider Telstra Corp. have issued the most among non-bank borrowers.
“Looking forward, borrowers are definitely going to be accessing cross-border markets, but volumes are hard to predict,” said Andrew Duncan, head of Australian debt capital markets at HSBC Holdings Plc in Sydney. “Overall offshore volumes are likely to be flat to marginally down on a year-on-year basis.”
In the domestic market, CBA is the largest borrower, trailed by major bank peers including Australia & New Zealand Banking Group and Westpac Banking Corp. Smaller lenders such as Suncorp Group Ltd. have also tapped the market, although there hasn’t been a single transaction for more than A$50 million from outside the financial services industry.
Ructions in global markets earlier this year helped to push out the average credit spread over swap rates on investment-grade U.S. dollar notes to an almost four-year high of 227 basis points in February from 173 at the end of last year, although that has since narrowed to 162 as of Monday, according to a Bloomberg index. The comparable spread on an Australian dollar index ranged between 123 basis points and 144 during the same period.
“A lot of what’s gone on has been influenced by the instability we’ve seen near the start of the year, and that’s also combined with the impact of the reporting calendar,” HSBC’s Duncan said. “In some ways, it’s a bit early to tell and we’ll know more as we move forward.”