Reverse enquiries from Asia-based investors are prompting issuers in Australian and New Zealand dollar bonds to issue longer-dated tenors, according to a survey conducted by FinanceAsia and National Australia Bank (NAB) for the annual Australia Report.
The survey into institutional investor appetite for Australian and New Zealand debt securities asked Asian bond buyers to provide information on their allocation strategies and indicate whether they planned to increase or decrease their exposures. This was the fourth such survey run by FinanceAsia and NAB. For more from this survey, click here. Click any of the charts below for full view.
Connie Sokaris, general manager of investment grade originations at NAB, said the popularity of Australian and Kiwi dollar securities has been helped by a number of new issuers entering the Kangaroo and Kauri bond markets.
“Korea Development Bank and Korea Export Import Bank both issued their first Kauri bonds this year, and DBS tapped the Kangaroo market for the first time,” Sokaris said. “When Asian names issue in new currencies they tend to bring a set of domestic bond buyers with them, some of whom may not have invested in the currency before.”
Sokaris said investor preferences have had a marked impact on deal flow, noting corporate bond volumes in Australian and Kiwi dollars have been on the low side this year. She said previous surveys have charted a growing appetite for high-yielding non-rated or investment-grade corporate bonds, but this year’s poll shows a preference for highly-rated government bonds.
“At the same time there has been a real uptick in Kangaroo issuance by investment-grade institutions including Wells Fargo, Royal Bank of Canada, Credit Suisse, BTMU and ICBC.”
Sokaris said Australian dollar bonds sold by offshore issuers continue to be well supported by Asian bidders. “Asian investors like borrowers who are consistent issuers in the market and they generally make up about 35-40% of any book,” she said. “For some deals, Asian allocations can be even higher.”
When Wells Fargo launched its benchmark A$1.65 billion deal in July this year it started with a 5-year trance but quickly added a 10-year tranche in response to reverse enquiries from offshore accounts. “Wells Fargo generated extremely strong demand from Asia, especially from banks,” said Jessica Tilton, head of markets for NAB in Asia. In the end, Asian investors took 42% of all orders.
One of the most successful corporate deals of the year was the A$500 million fixed and floating note issued by the builders of the Westlink motorway in Sydney. “The funds are being used to expand an existing motorway that has an established track record as a well-performing asset for owners Transurban,” said Sokaris. “Investors are very hot on infrastructure and we saw significant interest in the 10-year tranche for Westlink as a result.”
Similarly, when Airservices sold a A$400 million dual-tranche note in May, Asian accounts bought nearly 50% of the 10-year senior unsecured tranche following a roadshow though Hong Kong, Japan and Singapore. “Airservices is an air traffic control and aviation rescue company with strong links to the Australian government,” said Sokaris. “Investors were attracted to the relatively high yield for the AAA-rating.”
Commenting on other areas of the survey, Tilton said there has been a flight to quality in the type of counterparty investors are choosing. Half of this year’s participants ranked a bank’s credit rating as an essential factor when deciding who to transact with. “This is a real jump from last year when only 36% of investors listed credit rating as a key consideration,” said Tilton. “It really shows that investors want to be sure they are dealing with a quality AA-rated counterparty like NAB.”
Research and execution also featured more highly on investors’ agendas. “Fixed-income funds in Japan, Taiwan and Korea are particularly focused on painless execution,” said Tilton, “and it’s great to see research gaining in importance as investors realise the value of analysis and want more insights into what’s driving the market.”
Access to an e-platform has also increased in importance with 37% of survey participants now transacting more than half of their trades across an e-platform, versus 20% who were doing so last year. By the same token, 27% of investors said the availability of an e-platform was essential when choosing a counterparty bank, compared to only 12% last year.
Tilton believes the use of e-platforms is streamlining the way bond buyers evaluate securities and is channelling interest towards Australian and New Zealand dollar debt. “The digitisation of the global bond market takes some of the emotion out of the investment equation and allows investors to run simple yield and credit rating analysis. In this way, Australia consistently rises to the top.”