An evolving take on the domestic market
The domestic bond market has supported local corporate issuers with impressive volume and duration for most of 2020, notwithstanding pandemic-related volatility. Most – but not all – borrowers are confident there has been a genuine step-change in capacity and consistency dynamics.
LARKIN Undoubtedly, yes. The key to this is your perspective. Looking back over five years or more, we are in a vastly different world. The local market is more sophisticated, there are more investors, it is deeper, and it is more active in looking down the credit curve and at longer tenor.
Of course there will always be ups and downs. But I think there is a very clear trend that sees the Australian market continue along this trajectory. Often over the last several years it has comfortably been a better choice on value as well. It is never going to be as deep as Europe or the US, but it has matured enormously.
Lendlease came to the domestic market in 2013 and the transaction process was a bit like a club deal rather than putting together a distributed bond offering. By contrast, the process we went through most recently for our green bond operated and felt just like all the other international bond markets.
BRASSINGTON It has been a while since we issued – in fact, in two weeks’ time we are repaying our domestic bond. I still watch the market, though, and actually I disagree with Michael Larkin. I have been very critical of the AMTN market over a long period of time.
As someone who borrows money, having a viable alternative will always be beneficial but it does not strike me that the market has really developed or changed too much over the past five years. I think it was in 2019 that we did not see any domestic corporate issuance until about May.
It is great if the market genuinely has changed. If it can consistently support issuers at 10 years and longer, and with scale, borrowers will definitely find it attractive.
We are in a different place now – we are on an amortising path to the end of our concession. We have 19 years left to run but we only have one refinancing left to do, in 2027. So we will be sitting on the sidelines for a little while longer.
NOLAN I have sounded like a broken record in my support for the AMTN market. I think it has been in good shape over the past few years and it has proven able to support issuance at 10 years.
The development to 12 years is also welcome. We haven’t had the luxury of issuing in 2020, but I have watched from the sidelines and it appears to have developed well from what I can gather.
LARKIN For really sizeable volume and longer tenor, I think you are always going to get different results in the US and European public markets.
But the experience has changed. Lendlease came to the domestic market in 2013, for the first time in many years, and the transaction process was a bit like a club deal rather than putting together a distributed bond offering. It was quite a stark difference from the way most international bond markets operate.
By contrast, the process we went through most recently for our green bond operated and felt just like all the other international bond markets. We are very happy with the result, which included good demand and a diverse group of investors.
NOLAN Some very good analysts work in the investor base in Australia and progress has only been helped by the strength of the Asian bid coming through the domestic market.
VANDELIGT I agree that the local market has developed a lot over the eight years since I started in a corporate treasury. There are still periods of no supply, but eight years ago I would have been very hesitant to put a deal in the market unless there had been recent corporate issuance.
Nowadays, I would be confident in putting a deal into the market even if there has been no recent corporate supply – provided it was a manageable size somewhere in the range of A$200-500 million (US$147.5-368.8 million). There would obviously be a price-discovery process to go through but I am confident investors would support a transaction and a deal could be executed successfully.
LI We are actively looking to issue in the AMTN market. We have a A$600 million maturity late in 2021 that we will be looking to refinance. Tenor is a key consideration for us when looking to access capital markets, as we want to lengthen our maturity profile. So we hope the support would be there given we are a big domestic name.
BAILLIE Since the early primary deals from the likes of Telstra and Lendlease in the late 1990s, there has always been investor appetite for greater issuer diversity in our domestic market. But we have always been up against the banks in the 3-5 year bucket, especially for volume, while the US dollar market has provided a happy hunting ground for issuers of tenor of 10 years and longer.
It has been encouraging to see the amount of true corporate issuance that has printed domestically in 2020, and the dearth of supply from financials should further support this as investors look to stay allocated.
Hopefully, the market can consolidate this trend and it proves to be an opportunity to get the diversity this market has been seeking for so long.