
Market growth despite clouded economic outlook
Two themes emerged strongly from conversations at the 2024 Commonwealth Bank of Australia Global Markets Conference, which took place in Sydney and Melbourne in October. One is the shifting tectonic plates of geopolitics and macroeconomic norms, which makes forecasting the outlook more challenging than ever. The other is the underlying growth and improved functionality of the Australian debt market, which is producing opportunities and attracting capital in the high-grade and credit sectors.
Nearly 400 delegates registered for an event that brought to Australia international buy-side participants as diverse as global central bank investors and fund managers from the US private placement market. The event kicked off in Sydney on 21-23 October before moving to Melbourne on 24-25 October.
Commonwealth Bank of Australia’s executive general manager, global markets, Chris McLachlan, noted that “we are in uncertain macroeconomic times, to say the least” given shifting geopolitical currents and the increasingly pressing investment task of energy transition.
Against this backdrop, McLachlan added: “It is of critical importance that we bring together borrowers and lenders. Australia’s federal funding gap for 2024/25 is expected to be about A$20 billion (US$13.3 billion) – but this doesn’t do justice to the size of the flows that are actually happening. In the debt market alone, in 2023 Australian issuers raised close to A$450 billion from international investors and Australian investors placed about A$457 billion offshore. The size and the volume of flow is huge.”
Australasian rates outlook: Directional clarity but landing place uncertain
Commonwealth Bank of Australia’s economists and strategists remain confident that Australia’s rate-cutting cycle will commence in 2025, while the direction of travel is also still pointing firmly downward in New Zealand. But macro and geopolitical fundamentals have shifted significantly, meaning a return to pre-pandemic norms is much less likely.
Laurence Davison Head of Content KANGANEWS
The Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) took slightly different approaches in their response to rapidly increasing inflation in the wake of reopening after the acute phase of the pandemic.
The RBA made its first hike in May 2022 and the cash rate reached its – to date – cyclical peak of 4.35 per cent in November the following year. By the time of the Commonwealth Bank of Australia (CBA) Global Markets Conference in October 2024, the RBA had shown little sign of cutting in the near term.
The RBNZ commenced its hiking cycle earlier – in October 2021 – and went all the way to 5.5 per cent in May 2023. But it made its first cut in August 2024 and reduced the OCR to 4.75 per cent shortly before the CBA conference. A further cut in November saw the OCR fall below the Australian cash rate, to 4.25 per cent.
Ultimately, the central banks were responding to the same input: inflation that was heading toward worrying levels by late 2022. Australian CPI peaked at 7.8 per cent annualised in the December quarter of that year while New Zealand’s peak, of 7.3 per cent, came six months earlier.
The approaches were different, however – and deliberately so. Speaking at the CBA event, RBA deputy governor, Andrew Hauser, said: “It was a deliberate choice for us not to tighten as much as we could have, in order to try to protect employment. So far so good on that front. But this was with a recognition that, in not tightening as much, two things will be true. One is that inflation will take longer to come back, and this is proving true. The second is that rates will not fall as much or as early as they might do in some other countries.”

INFLATION AND OUTLOOK
Approaching the end of 2024, CBA’s economists are confident the RBA will commence its own cutting cycle in the new year: the bank’s base case is that the first cut will come in February.
While the 29 January publication of Q4 inflation data is likely to be the deciding factor, Gareth Aird, head of Australian economics at CBA, said at the conference that the underlying signal on inflation is already weaker than some market commentary and pricing implies. Annualised Australian CPI to the end of September 2024 was 2.8 per cent – already within the RBA’s target band and falling further, to 2.1 per cent, in the October print.
While much commentary has focused on stickier core inflation, which was 3.5 per cent annualised in the October print, Aird argued that the battle against inflation is clearly being won.
Speaking at the CBA event, Aird said: “The RBA’s view is that inflation is too high currently. This is absolutely true based on the annual rate of underlying inflation through to the June quarter of this year. However, the near-term indicators of inflation – in particular the monthly data that has come out so far for the September quarter and the range of prices gauges we monitor – lead us to think disinflation in Australia is occurring more quickly than is widely understood.”
There is certainly growing evidence of economic weakness in Australia. For instance, Aird pointed out that GDP historically leads employment – with a lead time of 6-9 months – rather than the other way round. This is important in the context of a relatively robust employment sector but growth numbers that are barely scraping into positive territory.
“We believe the GDP signal is indicating that employment growth will moderate,” Aird suggested. “This is especially the case given we know a lot of jobs growth has come in the public sector, which will not continue to hire at the rate it has been. We expect the labour market to loosen, wages growth to keep slowing and the RBA to lean into this.”
In fact, Aird argued, if the data continue to play out as CBA’s economists expect, the inflation debate in Australia may shift moving into 2025 – away from the notion that inflation is sticky and in favour of a “more encouraging outlook” that is more like the experience offshore.
SIGNALS UNCLEAR
Once rates start falling, the next question will be how far they will go. This applies equally in New Zealand where, despite the earlier commencement of the easing path, there is no more certainty about whether the central bank will continue past neutral levels and into stimulatory territory.




“With inflation near the mid-point of the target range and unemployment around the long-run average, in a very mechanistic sense the cash rate should be lower than it is now,” argued Nick Tuffley, chief economist at ASB Bank.
This is where the apparent dual track of inflation is most relevant. Tuffley noted that as recently as May 2024 the RBNZ was commenting on the potential for a further increase in the OCR, yet it started cutting just three months later. “The challenge has been the stickiness of inflation,” he explained. “Headline inflation, at 2.2 per cent, is now back in the target band. But it is tradable inflation that has brought the headline level down, while what is left is more domestic-focused. This has been quite persistent, though it has recently started to fall.”
Tuffley continued: “Our focus is on the response and risks now inflation and the cash rate have started to come down. Will consumer spending or the housing market take off? If so, will domestic inflation continue to be quite sticky? On the other hand, is it possible that the RBNZ has overcooked it – leaving rates too high for too long?”
The Australian and New Zealand stories are very similar in this respect. Aird noted that markets moved around significantly in 2024 with regard to pricing the RBA. In May, the market was priced for a higher cash rate in the near term and very little easing. By September, it was close to CBA’s base case of three or four cuts by the end of 2025 – but this outlook had already pared back a little by the time of the CBA conference in mid-October.
The RBA itself is clearly keeping a very open mind. For instance, Aird drew attention to two scenarios covered in RBA board minutes that could lead to less restrictive rates. One is a weaker economy with lower GDP growth and thus lower inflation, driven or accompanied by a sharply weakening labour market. This is reasonably well understood, Aird noted. But the other is less persistent inflation without weaker than expected activity – about which Aird said: “I infer from this that the RBA might not need to see further weakness in the labour market or growth to trigger less restrictive policy.”
Hauser, however, cautioned against drawing strong conclusions from the RBA’s scenario analysis. “We wanted to send a very clear signal that policy is ready to respond – it could be in either direction, but it is ready,” he said. “We don’t want to get to a place where people think ‘these guys are on autopilot – they’re not looking at the data or forming a view about output, they’re in some sort of mechanical sphere about where rates are going’.”
Instead, Hauser added, the RBA is conscious that the outlook is uncertain and the world could develop in a number of ways. “These are the downside scenarios as we see them. But there are upside scenarios, too. There are some nasty ones – particularly if the supply side proves to be even weaker. We could get a world where activity continues to weaken but inflation doesn’t pull back. We hope that isn’t where we get to but it is a possibility.”
So far, the RBA appears to have walked a fine line between losing control of inflation and crushing economic growth quite successfully. Adam Donaldson, CBA’s executive director, market strategy, highlighted just how narrow this path remains. Once a certain threshold is crossed, he noted, unemployment can move decisively higher as confidence is lost. It is therefore understandable that, with inflation coming down, central banks are inclined to take this risk off the table by easing policy.
However, Donaldson continued: “The problem is that the unemployment rate is still incredibly low – in Australia, it’s the lowest it has been in 50 years. If the RBA stimulates, confidence returns quickly and growth rebounds, we can move very rapidly from fear of recession to fear of inflation re-emerging. It’s a very, very fine balancing act.”

WORLD OF UNCERTAINTY
The complexity is only increased by changes to the fundamental macro backdrop that may be making old rules less applicable. “I look at a lot of what is happening in the global economy at the moment and it reminds me of days we thought were long past,” Donaldson said. “I believe we will find that we are not back in the pre-COVID-19 world but in an era where rates settle at higher levels than was typical during that phase.”
In particular, Donaldson explained, the story of the world economy over the past 30 years – and the savings flood that accompanied it – is one of really intense disinflation pressures that revolved around demographics, global free and open trade, and US willingness to have a strong dollar. All these trends appeared to be in reverse in 2024.
At the same time, the global balance of savings and investment is dramatically changing – fuelled by the energy transition. Transition investment is estimated to increase to US$5 trillion a year from US$2 trillion a year, Donaldson added, which represents an additional 3 per cent of world GDP. For most of the past 30 years there has been an excess of global savings, but this has switched – even before adding an investment task of this magnitude.
“What we are witnessing is an enormous switch occurring in the balance of capital: the need for capital and the relative savings that are there to facilitate it,” Donaldson said. “The reason this matters can be found in the definition of a neutral rate provided by the RBA a couple of years ago, which includes reference to the balance of savings and investment.”
The domestic picture is also changing – but potentially in a more positive way. Donaldson pointed out that Australia has been a net capital exporter for the past five years, having previously run constant current account deficits since Federation. He added: “The commodity boom and the local savings story switched things round, and while we might dip back into deficit in 2024 it is worth highlighting the fact that the nation’s foreign liabilities have been slashed, and over a pretty short period.”


Net foreign liabilities was always the weak point of Australia’s triple-A sovereign rating, Donalson noted. “This is no longer the case – in fact it is very, very strong. The main driver is on the equity side: debt liabilities have come down but are still quite large, while on the other hand we are a net asset owner. This is a reflection of the superannuation system – the savings every worker is contributing.”
Liquidity optimism for Australasian high-grade sector as fiscal policy evolves
QE may be a thing of the past in Australia and New Zealand but elevated sovereign-sector borrowing appears to be here to stay, for the medium term at least. On the other hand, a larger market is providing reasons to be optimistic about trading conditions and liquidity moving into 2025.
Georgie Lee Senior Staff Writer KANGANEWS
The combination of monetary easing and fiscal expansion has the potential to cause some “interesting side effects” in the Australian dollar fixed-income market, according to Mitchell Grosser, general manager and head of trading at Commonwealth Bank of Australia (CBA), who kicked off day two of the bank’s 2024 Global Markets Conference in Sydney.
So far, the impact of a US and broader global wind-down of central bank balance sheets has been “limited”, added Zac Sharma, general manager, chief investment office at CBA. Sharma told delegates this was the case despite an increase in month-end, quarter-end and year-end premia in foreign exchange forward markets, and an increase in volatility in repo.

The Reserve Bank of Australia (RBA) has yet to embark on a rate-cutting cycle, marking a divergence from other jurisdictions around the world and strengthening Australia’s relative-value position.
The RBA has begun to significantly reduce its balance sheet, however, allowing state and federal government COVID-19-era bond purchases to run down as they mature. Across the Tasman Sea, the Reserve Bank of New Zealand (RBNZ) is actively selling down purchases and has started to aggressively cut rates.
Though a big task, this technical tightening has so far presented few major challenges to liquidity in Australia’s bond market. For instance, the term funding facility (TFF), which offered A$188 billion (US$125.5 billion) of support to local banks during the pandemic, has matured fairly seamlessly.
Sharma commented: “The maturity of the TFF was easy to quantify and the impacts from a liquidity perspective have been straightforward to plan for. It has been a relatively orderly adjustment for the system toward an environment where TFF funds have been repaid.”
Indeed, a fairly reliable measure of liquidity in the government bond market – the repo sector – has been growing of late.
According to Diana Sobolev, director, global securities financing at CBA, repo volumes have almost doubled since 2021, with the Australian market now valued at just under A$400 billion.
There is large offshore interest in Australian cash and securities, and nonresidents have doubled their share of outstanding transactions in the last 10 years, to approximately 60 per cent, Sobolev added.
In the background, the reserve bank market policy landscape is changing. As of March 2024, the RBA endorsed a plan to transition to a system of “ample” reserves from pandemic-era “abundant” levels, while the RBNZ is considering future use of its balance sheet to manage liquidity in the financial system, including a similar move to ample reserves.
Karen Silk, assistant governor and general manager, economics, financial markets and banking at the RBNZ, told conference delegates in Sydney that, upon completion of the transition, there will be “sufficient cash to anchor interest rates to the OCR [official cash rate] and support an efficient payment system, but not much more.”
Silk also warned that market participants on both sides of the balance sheet should be prepared to be more active in the management of their own liquidity. But she stressed that what constitutes an ample level of reserves in the New Zealand financial system remains “highly uncertain” and “may change over time as there is no historical precedent for the level of decline we are seeing in settlement cash that is currently underway”.

ISSUANCE ENVIRONMENT
While Australasian central banks seek to modify liquidity in the system after COVID-19, conversely, governments are issuing more debt to refinance borrowing made during the pandemic period and to support a ramp-up in infrastructure investment – including capex for climate transition. The number of active participants in the bond market is growing – with a positive impact on liquidity, especially in Australia.
Both major Australasian governments are tackling large borrowing programmes. New Zealand Debt Management will target NZ$38 billion (US$23.6 billion) in the fiscal year 2024/25, the largest volume the market has had to absorb.
While higher issuance requirements have come at a time when central bank QE has withdrawn from the market, Kim Martin, director at New Zealand Debt Management (NZDM), told delegates net new borrowing has also been beneficial to liquidity.
The dollar value of bonds on issue allowed New Zealand to join the World Government Bond Index in late 2022, for instance. Robust liquidity has been evident in the data: for the quarter ending 30 June 2024, turnover of New Zealand government bonds (NZGBs) totalled NZ$59.6 billion, up from NZ$41.1 billion in the prior quarter. Even so, finding homes for bonds remains NZDM’s overwhelming focus for 2025 and beyond.
“No government aspires to increase their amount of debt,” Martin said. “But there have been some benefits to having a slightly larger programme. According to feedback from market participants, as a small market, having more bonds on issue has improved liquidity. We have more frequent syndications – we are able to offer three bonds per weekly tender – and the larger volume has also enabled us to issue out to 30 years, which had not previously been possible.”
Issuers detailed to conference attendees the various ways in which they encourage liquidity in their programmes and in their markets. One method is futures, which by their nature encourage liquidity, particularly from hedge funds, in the physical government bonds that run alongside them. The futures market supports the Australian Office of Financial Management (AOFM)’s A$90 billion issuance task for 2024/25.
Ian Clunies-Ross, head of investor relations at the government debt management agency, said the AOFM’s experience with futures liquidity has been “generally quite positive”. Liquid contracts support the liquidity of physical bonds, he stressed, though poor liquidity can detract from it.


The potential re-listing of NZGB futures on the ASX caught the attention of the market in 2024, and proposals to re-list are under consultation at the exchange.
New Zealand futures were de-listed five years ago due to a lack of activity, but market participants agree that an enlarged borrowing programme and a surge of entrants to the New Zealand cash bond market have rendered the jurisdiction more conducive to futures contracts. Martin told conference delegates that while it is not the role of the issuer to set futures in motion again, there are clearly benefits for the market, and for liquidity and trading.
DEMAND DYNAMICS
Bigger borrowing programmes can often stimulate greater interest from the buy side. Government bonds globally have cheapened relative to cash and other asset classes, and Clunies-Ross said higher spreads “will often be a buy signal for some investor cohorts”.
But at the same time, repayment of the TFF in Australia has reduced cash in the system and Clunies-Ross also noted that authorised deposit-taking institution (ADI) holdings of AOFM bonds were hovering around record lows.


“We don’t take that personally and we have a very diverse investor base,” he said. “In the last three months, ADIs have been coming back into our books. We always see intermediaries participate in our bond tenders but more recently we have also seen an uptick in bank participation in our Treasury notes.”
Conversely, NZDM’s Martin says the sovereign has experienced a doubling of domestic bank holdings of NZGBs over the past 18 months.
The AOFM describes the situation with bank demand as this sector having reached an equilibrium stage of ownership volume – in other words, while growth is likely limited to system growth there is also little likelihood of a significant sell-down. Local high-grade issuers will have to cast the net wider for their own incremental issuance needs, and in this context Clunies-Ross highlighted a recent uptick in hedge fund participation in 2024 – a trend that has gathered pace over the last 6-7 years.
Investors told conference delegates that they see value in Australasian high-grade issuance. Like their sovereign counterparts, heads of funding at state borrowing entities reported that liquidity is increasingly robust and trading conditions favourable as they too embark on bigger net funding programmes.
In particular, significant liquidity – particularly in the derivatives market – makes the relative-value case compelling. If investors believe the RBA is diverging from the rest of the world on rates they are likely also to be convinced that Australian bonds offer a very good value proposition.
Paul Kelly, head of markets at Treasury Corporation of Victoria, added: “I think we are in a sweet spot. We have elevated yields and wider spreads so we look very attractive on a global relative-value basis. Meanwhile, I don’t think we are about to embark on a major interest rate cutting cycle and consequently I don’t think we’re going to lose a great deal of that relative value.”
Issuance from the semi-government sector will again exceed that of the Commonwealth for 2024. Kelly noted that he expects to see a “bit of fluctuation in spreads” as the market navigates through the next 12-18 months to land at the right level at which to take down A$101 billion of supply from the semi sector. But he is positive about the number of buyers coming into the segment.
“I expect there will be some adjustments,” he said. “But there is a whole lot of new engagement. I’m confident that the demand for global Australian dollar product remains strong.”
Trading activity backs up this claim of market health. Turnover of Queensland Treasury Corporation bonds, for instance, stands at around A$170 billion per year. These levels pull in buyers from across investor segments including active managers and hedge funds.
As the investor backdrop has transitioned away from bank balance sheet accumulation, hedge fund and offshore participation has become ever-more important. Semis are heading toward becoming a A$800 billion market, challenging the size of the US municipal segment in scale.
“If we don’t treat the hedge fund sector with an appropriate amount of respect it is likely to pack up its cash and go somewhere else,” Kelly suggested. “I don’t think this is a primary funding risk we can take. It’s important to understand hedge funds – their individual pods as well as the managers – and treat them appropriately.”
CORPORATES LEAN IN AS AUSTRALIAN DOLLAR MARKET LEVELS UP
As the Australian dollar credit market reaches a new level of maturity based on an uptick in demand that shows good signs of being fundamental, the big question in the medium term may be whether sufficient supply can be generated to meet demand. There are reasons to be optimistic.
Joanna Tipler Staff Writer KANGANEWS
There is no doubt that 2024 has been a significant year for the corporate sector in the Australian bond market, marked by a new annual record of volume supplied across a variety of credit types at a wider range of tenors. Perhaps most positively, there was little or no sign of fatigue or indigestion, with new deals continuing to meet excess demand well into December.
But with the consensus that this newfound demand is here to stay – and considering the sector’s track record of highly active years followed by lulls – the supply outlook is in focus. Speaking at the Commonwealth Bank of Australia (CBA) Global Markets Conference, Des Fennell, the bank’s managing director, head of international and co-head, capital markets and syndicate, said: “The Australian dollar market has been on an absolute tear in recent years, growing not only credit issuance volume but also maturing significantly in terms of the depth of liquidity and product spread on offer.”

Throughout 2024, the Australian dollar market was touted for its depth and capacity: dealers and issuers cited oversubscriptions and a greater number of active investors in orderbooks for deals across the credit sector. To some extent this is part of a global, cyclical phenomenon. Increased demand for Australian dollar fixed income has come part and parcel with a broader, global movement into fixed income and away from equities ever since central banks began raising their interest rates.
Gus Medeiros, CBA’s executive director and head of credit strategy, pointed out that credit has become a better relative risk-adjusted proposition for multiasset funds. The differential between credit and dividend yields in Australia is the highest it has been in credit’s favour in a decade.
Australian credit has also been the beneficiary of regional developments. An influx of demand from Asia is driving orderbooks, after Australia was added to the J.P. Morgan Asia Credit-plus Index and the collapse of supply in the US dollar Reg S market left accounts in the region in search of new places to invest. Investors highlighted other reasons for channelling more funds toward Australia, too. For example, Ontario Teachers’ Pension Plan has identified Australia as one of the regions about which it has a strong conviction and thus wants to invest. “Going forward, you will see us more active not only in infrastructure but across all our asset classes in Australia,” Jan Brand, managing director, infrastructure and natural resources at Ontario Teachers, told conference delegates.
Brand explained that, aside from the fact that the fund has been investing in Australia for a long time, Australia is also “an indirect way of investing in Asia with the filter of the legal, regulatory and political systems that are a lot more akin to Canada’s”. Specifically, he noted Australia’s indirect exposure to growth in China and south-east Asia.
Brand continued: “When I bring an Australian opportunity to the investment committee, I don’t think anyone is really questioning Australia. It is a foregone conclusion: it is a great place to invest. We just focus on the investment itself.”
INCREASING SUPPLY
Having a healthy demand backdrop like this in which to issue is encouraging more supply from the corporate sector, with issues like execution certainty getting much more positive reviews from issuers in 2024. Indeed, some of Australia’s largest corporate borrowers have expressed increased confidence in the domestic market’s ability to meet their funding needs.
“The market is at a maturity level we are really pleased about,” said Alice Van Der Geest, group treasurer at Telstra. “When we are looking for size, volume and tenor, knowing that we can comfortably say execution risk isn’t a challenge compared with what it was even five years ago is such a pleasing outcome.”
She continued: “It gives comfort to issuers with reasonable portfolio sizes, that we can – as we should – have a high proportion of our funding coming from our home market and be well supported.”
In some cases, corporate borrowers are gearing up to do more of their funding in Australian dollars. However, some also point out that getting duration in the Australian market can still be challenging at times.
With refinancing needs capped at a level that may no longer be enough to satisfy baseline demand, market watchers are keeping a close eye on capex from new and existing issuers. Borrowers of both kinds suggested they will be making their way to market – albeit some are likely closer than others.
After obtaining the 50-year lease of the port precinct in 2016, Port of Melbourne went through a period of terming out acquisition finance facilities. This was followed by a period of limited maturities that resulted in the port not tapping debt capital markets for some time. The issuer is now rolling into existing maturities and accessing capital markets is back on the agenda.
Leigh Petschel, Port of Melbourne’s chief financial officer, said the port will spend around A$200 million (US$133 million) a year over the next five years. Beyond this period, the business will explore larger-scale investments to meet capacity requirements into the 2030s. In this context, Petschel said: “It is important that we are in touch with our core markets so the business can meet future funding requirements”.


NEXTDC, a data centre operator, is at an earlier stage of development. Mark Bower, NEXTDC’s group treasurer, explained it is “using significant amounts of equity” and has raised a lot of it in the last 12 months mainly to fund land investments and early stages of new projects where equity is better suited than debt.
“We have more runway with syndicated loans to support development as we secure more client wins over the next year or two, but ultimately we will have to go down the multi-markets path: we will be looking at capital markets,” Bower continued. “We will also explore special-purpose financings for some of our assets that could be viewed as standalone in nature.”
ENERGY BOOST
Another potential source of significant corporate debt is Australia’s energy transition. This requires investment stretching into the trillions of dollars, much of which will come from the private sector. At the CBA conference, Drew Lanyon, the bank’s execution director, sustainable finance and ESG, told delegates: “Our grid is going to require significant augmentation to transition our energy system, and this in turn means a substantial investment requirement.”
The most recent integrated system plan published by the Australian Energy Market Regulator proposes transmission projects that will cost more than A$20 billion in New South Wales alone, revealed Nadine Lennie, Transgrid’s chief financial officer.
According to Lennie, Transgrid’s capex was A$1.4 billion in 2023 and is likely to be A$2-3 billion per annum for the next 5-10 years as the company assists with the roll out of new infrastructure. “It is quite an upscaling for the entire industry, not just for Transgrid,” she commented.
Like Transgrid, AGL Energy has huge capex plans – amounting to about A$1 billion a year – according to Stephen Brown, the company’s general manager, capital markets and corporate development.
Meanwhile, one of the projects Origin Energy is currently involved in, the 1.5GW Yanco Delta Wind Farm project, is targeting financial investment decision at the end of 2025, revealed John Bowie, the company’s chief strategy officer. Bowie added that Origin is also investing in batteries with an estimated capex of more than A$1.5 billion.
But while these issuers have a lot to fund, how much of it is destined for the bond market is not entirely clear. Bowie said: “We have done a lot of work on balance sheet repair to get us into the position we are in today so we are very careful about what it looks like going forward – we want to maintain flexibility. We believe bringing capital partners into the mix for financing various types of assets will be an important part of this.”

Brown said AGL’s end goal is to get the cheapest energy into its portfolio, and to sell it as cheaply as it can to its customers while maintaining some margin. Therefore, he said the company needs to carefully balance the risk-return equation on every single asset it looks at.
Brown continued: “As we have done many times before, we will do capital recycling when we build renewable developments. Renewable developments are the perfect kind of assets to share the risk with third-party capital providers.”
Meanwhile, Transgrid noted some regulatory challenges that need to be overcome before it can fully finance its plans. Lennie explained that the regulatory system is in the process of change to support the scale of investment Transgrid is facing, but it is not currently established in a way that allows all funding parties to earn their relevant returns.
However, she highlighted the A$20 billion Rewiring the Nation fund as a “significant achievement” implemented by the Commonwealth government to enable the development of transmission infrastructure in Australia.
Lennie explained: “Rewiring the Nation funding will essentially bridge the gap between what the regulatory system is currently designed to provide and what is required to attract timely investment in mega projects of a size and scale not previously seen in Australia. We are seeing a number of reforms coming through, which will provide some relief but take time. This is why the Rewiring the Nation financing has provided some of the funding differential we need to enable equity to earn the regular rate of return and enable us to meet credit metrics.”
VICTORIA’S DIVERSE ECONOMY JUGGLES FISCAL DISCIPLINE AND GROWTH
Delegates attending the second half of the Commonwealth Bank of Australia Global Markets Conference 2024 travelled to Melbourne as guests of Treasury Corporation of Victoria. After a substantial increase in borrowing requirement as the state managed the challenges of the pandemic, delegates heard about the state government’s commitment to building a productive future while re-establishing fiscal discipline.
Georgie Lee Senior Staff Writer KANGANEWS
Conference guests explored a state boasting one of the nation’s most diverse economies, home to an array of fast-growing sectors and business leaders. The trip included a site visit to the Melbourne Olympic Park Trust site – home of the Australian Open grand slam event. Delegates also had the opportunity to see the scale of the city’s key capabilities in hospitality and entertainment, which make it Australia’s major events capital.
Delegates were also taken to the Monash University Precinct to see the Victorian Heart Hospital, Australia’s first dedicated cardiac hospital, and to the Monash University Innovation Labs, highlighting Victoria’s expertise in areas of innovation and knowledge. The visits were accompanied by presentations from business and government leaders that shared insights into the state’s sustainability strategy and a range of key industry sectors driving growth in the economy.

Some of these business sectors reflect Victoria’s strength in the environment and in renewables: it has huge opportunities in offshore wind, carbon capture and storage, and green hydrogen. Victoria was the first jurisdiction in Australia to set a 70-80 per cent 2035 target for emissions reduction and it also has the earliest net zero emissions target of all the states: 2045.
The Department of Energy, Environment and Climate Action (DEECA) has, over the last 10 years alone, commissioned 26 wind and 41 utility solar projects, and a further 14 large-scale wind and solar projects are now either in the commissioning process or under construction.
Twelve site areas have been identified, placing offshore wind in a particularly strategic role in Victoria’s net zero agenda – to bring on 4 gigawatts of new supply capacity by 2035. John Bradley, DEECA secretary, told conference delegates: “Offshore wind works for Victoria because we have world-class resources by international standards – it is the nature of the Bass Coast area. We have large areas that can viably support a significant amount of fixed offshore wind, which is more economical to deliver than floating. It also helps us in the energy transition because there is a high capacity factor for offshore wind that helps replace exiting coal-fired generation.”
As a result, the Victorian economy is benefiting from significant growth in green industry jobs. Department projections show the economy will continue to grow at speed as Victoria reduces emissions to reach its 2035 targets. Victoria’s statutory targets include that there will be 95 per cent renewable energy in the system by 2035.
Melbourne-based specialist offshore wind developer, Southerly Ten, is developing two offshore wind farm projects off the coast of Gippsland, Victoria: Star of the South and Kut-Wut Brataulung. Southerly Ten’s chief executive officer, Charles Rattray, told conference delegates in Melbourne that, up and running, the two projects would generate up to 4.4 gigawatts of capacity and power around 2.4 million homes.
Together they will inject A$7 billion (US$4.7 billion) into the Gippsland economy, where many of Victoria’s renewables sites are proposed to be located, creating up to 1,700 jobs across the life of the projects. Australia’s most advanced offshore wind project, Star of the South, is targeting first power by 2030.
“The construction jobs and, most importantly, the potential for ancillary jobs in industries that surround it are significant,” Rattray said. “We completed extensive economic modelling to arrive at our jobs estimate. Based on our findings from global projects, job projections linked to renewables have historically been underestimated – so we expect to see great outcomes in the regional communities where our projects are located.”
Delegates also heard about Victoria’s role in pioneering technology for green hydrogen and its role in decarbonising the economy, particularly the transport and energy sectors. Manufacturer Sungreen harnesses its technology to build the world’s highest-performance electrolysers, enabling green hydrogen production. Electrolysers made with Sungreen’s materials boost production and reduce energy consumption without using high-cost platinum-based metals. In addition, its water-splitting technology has enabled it to double hydrogen production, halving costs.
Victoria is also leading the way in carbon capture and storage (CCS), and is home to the most technically advanced multiuser CCS hub in Australia: CarbonNet. CCS is required in all major global and Australian carbon abatement modelling scenarios laid out by the International Energy Agency, even at the point at which renewables provide 100 per cent of the world’s power.



CarbonNet’s storage sites, also located in Gippsland, and Victoria’s extensive innovation in the space – including the Global CCS Institute and the Peter Cook Centre for CCS Research – were highlighted at the CBA event by the bank’s executive director, Donna Findlay.
FISCAL RESILIENCE
Growth and economic diversity will continue to be supported by Victoria’s burgeoning start-up sector. The number of start-ups has increased by 3.5 times since 2017, and valuations by 23 times since 2016, according to start-up agency LaunchVic. Its chief executive, Kate Cornick, said the sector underwent huge growth during the pandemic – which included job creation.
Prior to the pandemic, the sector employed around 41,000 people globally versus more than 67,000 today. “The sector is an enormous jobs multiplier,” Cornick explained. “Even though there is enormous failure in our ecosystem, people learn on the job and the ecosystem keeps growing. Start-ups contribute to state product including through exports by being global in their potential.”
In August 2024, the state government announced a A$2.4 million investment into eight new venture capital funds in the state. The idea is to leverage the state’s fiscal resilience to support a drive toward economic diversity. Some of this diversity will come from existing areas of strength outside the renewables space, while others will be an evolution of technology and skills.


Chris Barrett, secretary at the state Treasury, described the fiscal outlook and the government’s strategy as outlined in the 2024/25 budget. “Victoria’s economic outlook is positive,” he said. “The economy is growing, with a strong labour market, but inflation and interest rates are having an impact on growth.”
Real GSP growth has recovered from the impact of the pandemic, Barrett noted: the department expects growth to pick up to 2.5 per cent in 2024/25. This is close to the trend level of 2.75 per cent, which the department estimates will be achieved in 2025/26.
Household spending is forecast to trend upward, supporting growth, and a soft-landing scenario seems to be playing out, too, Barrett said. The government’s fiscal strategy outlined by the budget includes five key steps spanning jobs creation, a return to cash and operating surpluses, and stabilising debt. The fifth step, which is reducing net debt to GSP, was introuduced in the 2024/25 state budget. The current forecast expects net debt to GSP to begin to decline in 2027/28.
Infrastructure investment – in housing, education, transport and health – as well as in large projects including the Metro Tunnel and the Westgate Tunnel, has been high in recent years, relative to Victoria’s history. This investnent has been important as the population has continued to grow at pace.
But needed investment has to be balanced with fiscal discipline. In the latest budget, the government also announced it would moderate the pace of some of its larger projects and progressively return infrastructure investment toward pre-pandemic levels by the end of its forward estimates.
Jeroen Weimar, deputy secretary, housing statement implementation in the Department of Premier and Cabinet, who oversees the government’s housing agenda, told conference delegates that, as are many other regions, Victoria was experiencing a significant housing shortage.
But he highlighted that this is being met by significant institutional investor interest. “We have a plan to build 2.2 million homes over the next 25 years,” he said. “Melbourne is set to be the size of London from a population perspective by 2050 – which means more than eight million people living here. Most of the building will be completed in Melbourne while some will also extend out to regional Victoria.”
The state government’s housing statement, The Decade Ahead 2024-2034, sets out a medium-term target to build 800,000 homes over the next decade.

WOMEN IN CAPITAL MARKETS Yearbook 2024
KangaNews's annual yearbook amplifying female voices in the Australian capital market.