QTC goes long

Queensland Treasury Corporation (QTC) issued significant volume into long-end benchmark and nonbenchmark bonds during 2020. Grant Bush, the issuer’s Brisbane-based deputy chief executive and managing director, funding and markets, lays out the prospects for more long and ultra-long funding.

What key policy measures – being facilitated by QTC funding – is the Queensland government using to facilitate state economic recovery?

The Queensland government’s key economic policy settings are reflected in its economic recovery plan, which includes initial stimulus measures totalling more than A$7 billion (US$5.4 billion). The 2020/21 Queensland budget outlined a significant additional package of commitments totalling A$4.3 billion over four years. These measures provide essential support for service delivery as well as continued resources for COVID-19 support and recovery.

The 2020/21 budget also features a substantial A$56 billion capital works programme over the next four years, delivering critical economic and social infrastructure. It is estimated that this will support 46,000 jobs across Queensland this financial year.

With a much higher borrowing task, what are the priorities for QTC in its funding strategy?

With the issuance of our new 2032 benchmark bond, QTC has completed approximately 77 per cent of its A$21 billion borrowing programme as at the end of January 2021.

We will maintain our programmatic approach to issuance with an increase in the frequency of tenders, having already completed six this financial year. We will also continue to conduct syndicated transactions for larger volume and remain responsive to investor reverse enquiry. If demand and market conditions support the early completion of QTC’s borrowing programme, we will look for strategic opportunities for pre-funding.

QTC’s Australian dollar benchmark bonds will remain the cornerstone of our funding programme and we will consider issuance of other term-debt instruments to complement this. This may include green bonds, maturities out to 30 years, floating-rate notes and foreign-currency denominated bonds.

To manage QTC’s refinancing task, we will continue to smooth and extend our maturity profile. We have been actively responding to investor demand and building out our benchmark curve, issuing a 2034 benchmark bond in February 2020 and a new 2032 benchmark bond in 2021.

Domestic and offshore investor relations remain extremely important. We are looking to engage with our investors through virtual roadshows to ensure we continue to provide open and transparent communication.

Does QTC envision more of its issuance being longer dated given the shape of demand recently?

We have ongoing discussions with our clients about the benefit of issuing longer-dated bonds, from an outright yield perspective as well as to reduce the state’s refinancing risk. As a result, we have increased the capacity to tap this part of the curve and have issued approximately A$2 billion in maturities of 2040 and longer this financial year.

The volume of issuance will ultimately be driven by investor demand – which is not currently broad-based – and whether the rate is attractive to both investors and our clients.

QTC has US MTN and euro MTN programmes. How closely is it watching offshore markets and could benchmark issuance be a possibility?

We continue to monitor offshore markets as investor diversification is important to us, especially at a time when semi-government borrowing programmes have increased. Last year, we issued a small volume of a new June 2050 euro EMTN. However, the emergence of Australian dollar buyers in the ultra-long space allowed us to build liquidity in our domestic curve at more attractive levels.

There were periods over the last 12 months when the economics of issuing in US dollar benchmark format were close to an executable level. However, given developments in the domestic market and the tightening of spreads, the economics have dissipated for the time being.

QTC continued to be one of Australia’s leading issuers in the green-bond market during 2020. What is the scale of projects that could be added to QTC’s eligible-asset pool and could this programme account for a larger portion of QTC funding in future?

While green bonds are an important part of our diversified funding strategy, we do not have set targets. As a large benchmark issuer, we expect they will remain a similar portion of our overall funding.

We currently have an eligible-project pool of approximately A$6.7 billion and around A$4 billion of green bonds outstanding across three lines – so we have capacity for future issuance. As an active green-bond issuer our intention is also to expand and diversify our eligible-project pool.

We continue to review the state’s existing asset base as well as new infrastructure and government initiatives for inclusion. Near-term opportunities might include assets and projects in the water-infrastructure, waste-management and low-carbon-transport sectors.