The Australian Dollar Corporate Market
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panel discussion 2 The AusTrAliAn dollAr corporate mArkeT: rising To prominence n 2014, for the first time, the agenda for the KangaNews DCM Summit included a panel discussion on the Australian dollar corporate bond i market – an endorsement of the new-found relevance of this growing asset class. The beginning of 2014 has been more circumspect after two years of increased issuance and diversity, but market participants say the future is bright. panelliStS n Adrian David Senior Credit Analyst MacquArIE Investment MANAgEMENT n Tim van Klaveren Executive Director and Head of Credit uBS Global Asset MANAgEMENT n Darryl Mutzelburg Chief Financial Officer POrT OF Brisbane n Bob Sahota Head of Fixed Income CHALLENgEr n Erin Strang group Treasurer AurIzON n Guy Wylie Treasurer TelstrA COrPOration ModeRatoR n Ron Ross Head of Capital Markets, Australia ANz DOMESTIC DEVELOPMENT quite open to both overseas and Australian markets, but the Australian market caught our attention. There was a lot of Ross what have issuers achieved in terms of activity from July to September in the triple-B range. What we transactions in the domestic market over the saw was a series of triple-B issuers being able to achieve longer past 12 months? tenors at a reasonable size. We followed suit. We ended up with n StRang For context, Aurizon is Australia’s largest rail-freight a A$525 million (US$492.5 million), seven-year transaction – haulier by tonnes pulled. We are triple-B-plus rated and were the largest single tranche transaction for a triple-B range issuer. listed on the Australian Stock Exchange in late 2010. Aurizon Looking to the future, we expect to continue to diversify Network, the issuing entity, is a wholly owned subsidiary of our debt, lengthen tenor and retain flexibility for our company Aurizon Holdings. It owns, operates, manages and controls the at a reasonable cost. central Queensland coal network through 2,600 kilometres of n MutzelbuRg Port of Brisbane was privatised in 2010 and track in the North of Queensland. It is a regulated asset and is the largest capital-city port in Australia, with a significant provides open access to rail operators. amount of land and diverse cargo including bulk commodities. Last year we undertook a material review of our capital We have A$1.1 billion of debt, the majority of which came structure to make sure we had the appropriate structure going across as project finance from privatisation. We started turning forward. This also made us contemplate our long-term debt- that out into the capital markets when we placed US$550 management strategy in terms of diversification, tenor and million of debt in the US private placement (USPP) market in flexibility – all to be done at a reasonable cost. 2012 – A$100 million of which was in Australian dollars. In June 2013 we ended with debt held appropriately against In a diversity play we placed A$300 million into the our regulated asset, in line with a regulatory assumption of 55 domestic MTN market last year, which only leaves us with per cent debt to the regulated asset base. We then, alongside about A$300 million worth of bank debt on the books. We our bankers, decided to look at how to diversify. We were have a nice spread of markets and maturities now. 24|kanganews supplement may 2014 n Wylie Telstra Corporation (Telstra) is the largest issuer in the look to use our credit skills on a fundamental basis to work out AUD corporate bond market with about A$2.6 billion on issue whether we want to take the initial yield for the credit risk. To in the public markets at present. We issued a five-year, A$500 broaden out the triple-B area of issuance it is very important million bond in November 2013 which priced at 88 basis points for us to have good Australian corporates issue into the over the swap rate. At the time this was clearly the best option domestic market. for us from a price, volume and execution risk perspective. It is interesting that Australia has one of the largest sales With a long-term debt portfolio of around A$15 billion pools in terms of superannuation, with A$1.7 trillion in assets equivalent we have a lot of options in terms of the markets under management, yet we have one of the least-developed we access. We are keen to discuss how we can do more in the corporate bond markets in the world when you look at that Australian dollar market and how we can extend tenor into the savings pool. David Murray recently said the Australian market seven- to 10-year range. The Australian dollar is where Telstra should be A$400 billion in size, so we have a long way to go. has a strong focus and we see it as a strategically important and But it all bodes well for issuers and investors alike to see if we growing market moving forward. can work out deals to be issued in the Australian market. Ross From the investor side, what did you OFFSHOrE OPTIONS see evolve last year and what did you see as a positive backdrop for the australian dollar Ross offshore markets also remain market? competitive. with this in mind, how n david Overall, 2013 was pleasing with a broad range of important is it for australian corporates to issuers across many different sectors, a range of listed and maintain a presence in the domestic market? unlisted issuers and corporates issuing secured and unsecured n StRang It is very important. We are an Australian dollar debt. From that perspective it gives us more optionality in being company so there is always a cost element to offshore issuance. able to reflect our views. We don’t have to participate in all the We have around A$2 billion in debt within Aurizon Network, deals when there is such a large range, but this of itself gives A$525 million of which is now funded by the Australian dollar the ability to differentiate ourselves. debt capital market and the remainder by bank debt. This van KlaveRen I agree. In terms of diversification, we saw an suggests we need to implement more diversification. But even increase in both the number and different types of issuers and as we are looking offshore we would still look to build a curve investors which actively participated in the Australian corporate in Australia. bond market during 2013. We also experienced an increase in the level of interest from offshore – with regard to both issuers Ross the uspp market has been around for and investors. some time and there are specific reasons “We would welcome the opportunity to push the boundaries and do longer tenor – 10 years or more. It is partially up to the investors – we need to work as a team to persuade the superannuation industry to recognise the value of an increased allocation to fixed interest.” guy Wylie telstra corporation In terms of tenor, a number of seven-year deals printed. why australian corporates would go to that But, ultimately, the market needs to extend to 10-year term. market – for instance for extended tenor, In terms of book size, in the past there had always been because they are unrated, or because questions about the potential volume that a triple-B issuer they are natural us dollar funders. How could achieve. But we are seeing a lot more interest for primary would issuers broadly compare issuance triple-B issuers. In the recent Perth Airport deal [for A$400 prospects in the two markets from their own million, priced in March 2014], for instance, we saw a book in experiences? excess of A$700 million. n MutzelbuRg When we went to the USPP market in 2012, n Sahota Challenger is a credit investor so triple-B issuance, the domestic MTN market wasn’t there for triple-B corporates especially at 7-10 year tenor, is a positive development given we so it didn’t feature as one of our options. The major difference are writing record numbers of lifetime annuity liabilities. We between USPP and Australian domestic MTN is tenor, so it is 25 panel discussion 2 marks oF the covenants An issue which has consistently bubbled under the surface in the Australian dollar market is covenants – specifically a concern on the part of local investors that some issuers were favouring other markets via stronger packages. The discussion nowadays seems to be much more open. n RoSS Covenants can be We are not concerned about bank debt facilities are with That is due to the quality frustrating for both issuers what we offer in terms of a small group, versus a bond of the rating and name. and investors – specifically our metrics – which are issue which could be with if they see inconsistencies fairly modest and to which 40 or more investors. I think Wylie We issue under a in terms of what the we have no intention of it’s appropriate, with long- standard negative pledge domestic market expects ever getting anywhere term debt arrangements in all markets. In domestic compared with the offshore near. If covenants provide with multiple investors and issues, where we look to do alternative. How do issuers investors some comfort, at strong credit equity, not to A$500 million (uS$469.0 set themselves up from a that will help with pricing. have to provide covenants. million) size transactions covenants standpoint? at a time, we like to have a StRang Aurizon has a Sahota It’s a case-by-case lot of liquidity in the deals.