Aussie credits attract bond buyers from Asia

Accounts in China are being especially targeted says Westpac, as the bank considers an alliance in the region.

Keen to match the record number of bonds issued in Australia last year, debt arrangers will be selling more paper into Asia in 2005.

While accounts in Hong Kong and Singapore are already regular buyers, investors from other countries are quickly doing their homework say local participants. Some of the instruments likely to be targeted at these new investors are: straight domestic bonds, 144A notes issued by Aussie names or Australian dollar Kangaroo bonds issued by foreign nationals.

It will take some providence to reach the record levels of debt raised in 2004. Altogether 113 domestic transactions worth a total of A$42 billion were completed - with nine of these deals worth over A$1 billion each. Another $5.5 billion was raised in US private placements, up 40% on the year before.

"Asia will be another source of liquidity in 2005," says Philip Coffey, group executive at Westpac Institutional Bank. "With a number of uridashi bonds maturing this year there will be money looking for opportunities."

Running top of the league tables (plain vanilla + ABS) for most of 2004, Westpac lead managed 34 deals, raising a total of A$7.6 billion for clients. The bank had its greatest success with ABS and domestic corporate issuers, executing nine out of the 17 corporate bond deals on a joint or sole lead basis.

Coffey says new interest is coming mostly from China. "China is still generating massive surpluses from its current account that needs to be recycled and now they want alternatives to their traditional diet of investing in US Treasuries."

He says Asian investors have become more comfortable with Aussie credits over the years and are keen to trade on the country's strong fundamentals. "They start by looking at well known credits where there will be additional liquidity so they can trade if they want to - even though, most of the time, they end up hanging on to the paper," says Coffey. "After a while they want more tailored products or those offering a higher yield."

Like its local bond house peers (Commonwealth Bank, National Australia Bank and ANZ), Westpac is working on a strategy to tap Asian investor pools. "At the moment we distribute deals into Asia on a case-by-case basis, but we are considering a more formal arrangement. We might consider signing an alliance with a local partner, one that would bring local capabilities."

Coffey draws comparisons with Westpac's alliance with Bank of America, where the two work together on US private placement transactions. "We have the client relationships and they have the distribution - it works very well with not a lot of business overlap." Last year, Westpac and Bank of America completed a number of high profile US deals including a $440 million transaction for PBL and a $300 million deal for Transurban. Coffey claims the duo cornered 35% of the market.

Westpac has an office in Singapore and, for the past 12 months, has been moving sales staff into place. The bank is committed to full service out of the region, and last month appointed a new general manager to Singapore.

"When it comes to competing in Asia we come up against a number of global investment banks that also have relationships with Australian clients," says Coffey. "These guys are a step ahead of us at the moment because of their distribution capabilities in the region. But we're working on it."

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