In volatile times, issuers and syndicate desks want to price deals rapidly to reduce execution risk.

But the time given to conduct adequate due diligence is a perennial gripe for many Australian investors. In a volatile market, deals priced intraday, coming to market late on a Friday or closing after 4:30pm Sydney time make it difficult for investors to mark trades.

Phil Strano, senior investment manager at Yarra Capital Management in Melbourne, says if issuers and banks do not run an institutional process a deal will not be classed as institutional “and we will politely decline to participate in these opportunities”. He continues: “I understand the desire to minimise execution risk but investors need time. It is a balancing act between issuers and investors.”

Investors have called out Hyundai Capital Services’ three-year, A$200 million (US$149.4 million) deal and AusNet Services’s five-year, A$600 million transaction as examples of rapid execution. Both bonds launched and priced on a Friday. AusNet’s new corporate structure complicated investor due diligence as a Brookfield-led consortium bought the company in late 2021.

Issuers are undoubtedly trying to reduce execution risk in an environment of increased volatility. However, some lead managers also note that investors in Europe and the US typically get little or no warning of new issuance. The view is that Australia has been one of the more accommodating markets on timeframe from initial discussion to launch.

Market participants say investors may need to recalibrate how much time they have to work on deals as the Australian market matures. Richard Garland, senior portfolio manager at QIC, notes volatility may force issuers to rush to market and suggests this should not be considered abnormal. “The amount of time we get in Australia relative to offshore is quite large – a typical deal in the US might launch in the morning and price right after,” he acknowledges.

On the other hand, as rates move higher issuers will also need to recalibrate yield expectations, Garland argues. “The rates market has moved a lot. In Australia, the cash rate is still at emergency settings but the market is certainly pricing aggressive hikes starting this year.”

Issuers may also need to pare back expectations, particularly on price. Strano adds: “It is unlikely issuers will be able to achieve the pricing outcomes observed in H2 2021. This represents a beneficial repricing of value to us.”

Phil Schretzmeyer, head of treasury and group planning at Charter Hall Group, says the Australian market could dial back deal volume as volatility escalates. “In the past, A$250-A$300 million was a good-sized corporate transaction and the A$500 million size was less common,” he says.

Corporates have been able to issue larger-sized deals over the last two years as financial institutions exited the market due to the introduction of the term funding facility. “This dynamic has shifted and changed,” Schretzmeyer continues. “I expect issuance sizes to be smaller – it suits investors and ultimately we are trying get the best deal execution possible. The US market has tended to be where larger volume gets printed, and I expect this to become more common.”

Schretzmeyer says all deal execution comes down to investor appetite. “Our deals do not exist without investors. If they have a preference to buy certain tenors and deal sizes, we need to match that preference to clear a transaction.”