Australian market role soars for corporate issuers

The cohort responding to the survey is among the most active in capital markets in Australia and New Zealand. More than 40 per cent say they issue at least annually, and 70 per cent no less frequently than every 2-3 years (see chart 1).

Perhaps the most notable data point in the 2024 survey is the extent to which issuers’ reliance on – and faith in – the Australian dollar market has increased. Nearly three-quarters of Australian issuers say their local market is among the best options for their funding in 2024 and the same expect it to continue to be in 2025 (see chart 2). This is not unprecedented, but the extent to which other options – including US private placements (USPPs) and global benchmark markets – have fallen away as preferred issuance venues is notable. None scores much above 20 per cent in 2024 or in 2025 forecasts.

Since 2023, the prominence of the Australian dollar market has also soared for New Zealand issuers. Nearly two-thirds of the New Zealand companies that responded to the survey have the Australian market in their expected most favourable options for 2025 – just 12 per cent fewer than list their own domestic market (see chart 3).

This is based on a significantly improved view on the functionality of the Australian market. More than 80 per cent of Australian corporate borrowers say the local issuance option offers “excellent” or “good” functionality in 2024, compared with barely 30 per cent that say it was at this level five years ago (see chart 4). By contrast, New Zealand issuers if anything believe the functionality of their domestic market has weakened in the past half-decade.

These results reflect an Australian market that has enjoyed an influx of funds in 2023-24 and a consequent capability to offer issuers more volume, longer tenor and more reliable execution. As the end of the calendar year looms, the question is whether these conditions will prove to be sustainable or whether – as has happened before – momentum will seep away as and when conducive technical factors ease.

Brad Scott, head of DCM at Bank of China in Sydney, says: “The survey results are totally consistent with the way we feel about the market at the moment – that the stars are aligning when it comes to investor and issuer expectations on price, volume and tenor. We have experienced many Australian dollar renaissances before. But the capacity step-change feels more structural this time, boosted by rising Asian interest.”

Corporate issuers appear to hold a similar view: 70 per cent or more of Australian and New Zealand corporate issuers expect to increase their engagement with the Australian dollar market over the next two years (see charts 5 and 6). This is easily the highest proportion of any of the capital markets funding options included in the survey.

The outlook is clearly positive for Australian dollar deal activity, and Scott confirms the survey results match the feedback he has received from issuers. “We are encouraged by the velocity of RFPs we are receiving from issuers seeking to explore the domestic market next year,” he comments. “We are also excited at the potential for Kangaroo names to re-engage, which could be a potential wildcard in turbocharging primary volume.”

Increasing supply from international corporates could be an important component of volume growth in the medium term, because the biggest challenge for growing volume significantly may be on the domestic supply side.

“The caveat to 2025’s positive local supply outlook is that most corporate funding need appears to be refinancing rather than growth capex,” Scott explains. “Looking further ahead, the big hope for supply is probably that transition financing will find its way progressively into the market over the coming years. The question mark here is whether issuers conclude that the domestic market is best suited for this supply or that offshore options are more suitable.”

Surveyed issuers – Australian and New Zealand – report that their call on capital markets is likely to be flat to moderately higher in 2025-26 (see chart 7). The two nations have similar capex profiles, though in this case it is actually New Zealand issuers that forecast a more active investment environment (see chart 8).

Financing transition will boost capex needs for some corporate borrowers but the survey suggests this supply line is yet to come through in size for the majority. Less than 10 per cent of issuers in Australia or New Zealand report “very large” transition finance needs, though nearly one-third of Australian corporates say they either have “large” or “very large” needs.

This may explain why sustainability labelled debt instruments – whether in use-of-proceeds (UOP) or sustainability-linked format – remain something of a niche. No more than one-quarter of Australian issuers has completed debt funding in any of these formats and even where there is interest it is typically general rather than proximate (see chart 9).

Pricing is just one of the issues. Scott says: “It feels like we’ve gone full circle on greeniums. Several years back, many issuers felt they couldn’t justify doing a deal without a greenium then, post COVID-19, the narrative changed to sustainability financing being a necessity regardless. Now, issuers are back to questioning pricing benefits, mindful of greenwashing risk.”

He continues: “Meanwhile, disappointingly, the sustainability-linked area seems bogged down in whether KPIs are ambitious enough and deliver genuine sustainability benefits.”

Capex is also naturally constrained when there is a weak economic and business outlook, which certainly appears to be the case in late 2024. While more than 60 per cent of Australian corporates are expecting “steady but gradual” growth – almost twice the proportion of New Zealand issuers with a positive outlook – Australian companies are also much more likely to have had their business outlook weaken over the past 12 months (see charts 10 and 11).

This likely reflects the short, sharp shock of policy tightening in New Zealand, which forced the country into recession but may have laid the ground for a quicker rebound, compared with the longer grind of higher rates in Australia.

The same picture comes through in borrowers’ expectations about the cash rate. While most Australian corporates expect the local cash rate will be 50 basis points or more lower in 12 months’ time, more than 40 per cent expect a smaller cut or none at all. In New Zealand, by contrast, every single issuer surveyed expects the official cash rate to be 50 basis points or more lower by Q4 2025 (see charts 12 and 13).