Unwrapping the DCM Summit

Australian elections, markets and politics in Europe, bank funding, the evolution of the domestic corporate market and the future of deal execution were all on the agenda at the KangaNews Debt Capital Markets Summit 2019. Industry leaders shared their insights into all the key issues of the day.

"If a political candidate were to emerge tomorrow as a messiah figure Australians would be more sceptical than they have been in the past. Australians are sick of the ‘rescuer’ leader."

"Australians are concerned that there will be a recession of political leadership. The quality of political leaders has reduced us to where we are today, with two lifelong apparatchiks in the job that are hardly inspiring future great figures to emerge from the Australian people."

"It is worthwhile making an investment in teams to target the direct-lending opportunity in Australia. We are fortunate that we have scale such that it makes sense to take this in-house, but it is positive that there are other managers helping super funds that may not themselves have the scale to access this opportunity directly."

"A more homogeneous security setup for private debt would attract a more diverse buy side and smooth the path for issuers and investors to land on a mutually beneficial outcome. But we also need to strike a balance between making opportunities attractive for investors and making them worth the time and effort for borrowers."

"Our sweet spot has been for corporates that are unrated or have private ratings and do not have the size of borrowing demand needed to go to the USPP market, but have a business and balance street that supports providing longer tenor. There is a group of borrowers for which this funding makes perfect sense, but we have specific requirements and it is very much horses for courses at the moment."

"The challenge is marrying demand and supply. In part this is about educating corporate Australia on the range of options across the capital stack – specifically that they don’t all start and end with bank funding. My genuine worry is that funds will flood the sector but supply never materialises, which would be a great opportunity lost."

"We used our bank documentation, particularly the common-terms deed, as the basis for the documentation of our debut Australian dollar private placement. It took time to get investors used to these types of docs. As more participants look at transactions, ultimately we will need a more standard set of documents."

"Domestic demand for bank paper is currently very strong and we could issue more in Australian dollars. But for diversification reasons we would rather maintain around a third of our funding in Australian dollars, a third in US dollars and the same in euros and other currencies. There have been times recently, though, where the reliability of the Australian dollar market has been very useful." 

" Credit growth is slowing across all sectors, from housing to personal finance. This affects our balance-sheet growth and is likely to mean that our funding requirement is unlikely to trend higher in the immediate future." 

"The impacts from the RBNZ’s proposed changes to bank-capital requirements are material and would result in a significant increase in capital for ANZ New Zealand. Further, the proposals seek feedback on the role of tier-two capital in New Zealand going forward." 

"We receive robust support from domestic accounts on senior and covered bonds and while the ongoing growth of superannuation continues to prop this demand up we know our funding requirement is greater than the Australian market can sometimes stomach. We don’t have quite the same level of support from Asia, but we would love it if we did and we will keep working hard to develop it." 

"Real money is supporting us as strongly as it ever has while there is less bank-type demand generally, in line with a theme that has been developing for some time. It is sometimes a bit different in RMBS, but there is definitely greater real-money support in the senior-unsecured space."

"The Australian and New Zealand major banks have had a significantly reduced call on the US dollar market in the last two years. Total issuance in US dollars was down by 43 per cent in 2018 compared with 2017 and, with lower funding tasks, it is likely it will stay down in 2019."

"Blockchain had its genesis in decentralisation and disintermediation, and yet what has emerged in some of the proofs of concept and more mature projects is that there is a need for those that can be trusted to provide services. Interestingly, trusted intermediaries are often playing an important role in the development of blockchain-based systems."

"In the current process, bonds are created, allocated, registered and transferred on the blockchain platform but the cash settlement is done off chain. The authorities can play a key role in helping bring the full-trade life cycle onto the blockchain by introducing a digital currency to facilitate the cash settlement on the blockchain platform. This would significantly improve the effectiveness and efficiency of the process."

"Blockchain platforms could displace traditional roles currently filled by registrars, clearinghouses, fiscal agents and custodians. Investors would obtain access to a platform, be uniquely identified by encryption and submit bids directly via the platform in real time."

"There is a need for governance at the same time there is decentralisation and distribution. These two inevitably run counter to one another."

"The Australian market has been helpful as a catalyst to step further into the region and the global investor community. We initially entered the market just looking at covered bonds but learned quickly that there was significant demand for senior debt. Then, when we had a tier-two requirement, our name was sufficiently well known that we could access the Australian dollar market for this, too."

"Liquidity is transient. It is important that the market as a whole uses valuation methods that take account of when liquidity is there and also when it isn’t. We are aware of this and will try to take advantage when there is more liquidity in the market."

"Whether corporate product is a bond, a loan or a private placement, at the end of the day it has to offer access to a diverse group of investors in order to put tenor and an alternative funding source into a balance sheet."

"Our logic with Australian dollars is not to find a pricing arbitrage: we are prepared to pay a premium for investor diversification. At the same time, we cannot pay too much of a premium and this is why we could not issue in 2016 and 2017. In 2018 the levels worked for us."

"There has been a fundamental shift in the way Korean issuers view the Australian dollar market. It used to be very opportunistic, but we have seen this develop into a strategic approach – particularly for the policy banks."

"Rabobank Australia Branch is a longstanding issuer in the Australian market. Funding is predominantly kept onshore and used to help fund the balance sheet, and it also feeds into our global long-term funding budget. Issuance by the parent is not opportunistic per se, but typically focuses on products which rank junior to preferred senior." 

"Scouring for yield in core Eurozone means going further out the curve. Investors were looking for five years in January. By March the new normal was 10-12 years. We are also seeing investors move down the capital structure, into tier-one securities, in the hunt for yield."

"ECB buying takes the pressure off the weaker links in the Eurozone to adjust their economic policies and carry out structural reforms. The ECB itself is quite frustrated by this but, at the same time, cannot let Italy’s deficit get completely out of hand. We are sitting in a hole and finding it difficult to stop digging."

"Some Eurozone countries – not just Italy, but the likes of Ireland and Spain – have never really returned to market in any kind of condition that could be described as normal. All the bullets have been used and we are suddenly hitting another slowdown."

"Leveraged loans are beginning to look like a stress point for global markets. We track covenant quality, and it looks worse now than it did before the financial crisis – so we are thinking about which banks are providing these loans and how they affect their credit."

"The Australian market is dominated by issuance from financial institutions, with a lot of supply from offshore names looking to diversify funding sources. The Australian market continues to offer significant opportunities in this space, providing investors with diversification across geography and format."