Australia sets template for covered bonds
* One year balance shows success of security * Australian banks issued almost AUD41bn * Results encourage other Asian countries By John Weavers Nov 30 (IFR) - A year on from its first covered bonds, Australia's experience is providing an encouraging template for other Asian jurisdictions to follow. Australia's covered bond market has gone from strength to strength since November 2011, and the country's four major banks have become significant players in the senior secured universe at home and abroad. The pace of progress will not have gone unnoticed elsewhere in Asia Pacific, with regulators moving closer to creating legislation that will allow the issuance of covered bonds in Singapore and South Korea. There has been the odd hiccup along the way. ANZ and Westpac ruffled a few feathers with the first deals, when they pushed through a combined USD2.25bn of inaugural covered bonds to underwhelmed US-dollar investors. NAB's 14-year sterling print in August was also poorly received, but, generally, the four majors have timed their market visits well to take advantage of a highly receptive global audience. So far ANZ, CBA, NAB and Westpac have taken in around AUD38.5bn equivalent in covered bond format over the last 12 months. Just over AUD10bn has been raised in local currency, almost AUD11bn equivalent in euros and approximately AUD11.6bn in US dollars alongside smaller transactions in sterling, Swiss francs and Norwegian kroner. In addition, non-major Suncorp has raised AUD2.2bn from two domestic issues. The majors have raised almost as much in the covered-bond format than they have from their traditional senior unsecured funding sources where they have issued AUD11.65bn domestically and around AUD30bn equivalent overseas in 2012. Adam Gaydon, ABS syndicate manager at ANZ, said: "Overall, things have gone very well at home and abroad with Australia's major banks able to tap Europe's deep and liquid market and the USA's growing covered bond market." Over the last 12 months as investors became more risk averse they were increasingly attracted to this well-regarded Triple A rated asset class, a highly regarded AAA jurisdiction and Australia's well-regarded (Double A rated) major banks. "Australian covered bonds ticked almost every box plus offered investors diversification benefits as a new asset class," Gaydon said. On the sell side, the majors have been able to diversify their investor bases and enjoy decent savings over the senior unsecured market. These savings amount to around 50bp for new Australian-dollar five-year paper as the NAB senior unsecured February 2017s are being offered at 95bp over swaps, whereas Westpac's February 2017 covered bonds were offered at 52bp. SECURITISATION LIVES ON Importantly, fears over the future of RMBS have not been realised. These fears reached a peak in January when CBA and Westpac made their debuts in the Aussie-dollar covered bond arena when they paid 175bp and 165bp respectively.over BBSW for five-year paper, levels that did not make it economical for anyone to issue RMBS. This caused a pause in the RMBS market before ING Bank issued Class A1 notes with 3.2 year weighted-average life at 145bp over BBSW on March 29. The global backdrop deteriorated subsequently, pushing spreads wider, before recovering again later in the year before as ING returned on September 27 when it paid 135bp over BBSW for its Class A1 notes with a 2.7 year WAL. One consequence of the new covered bond market is the dramatic downturn in major bank RMBS issuance. There has been only one deal each from CBA and Westpac this year. Their restricted presence has certainly buttressed non-major ADI deals. Indeed, the strength and breadth of demand for RMBS paper in recent months has been such that no support was required from the Australian Office of Financial Management in four of the last five transactions. Only once previously - Members Equity in March 2011 - has the AOFM's involvement not been necessary since it began investing in RMBS in late 2008. As far as lessons for other jurisdictions are concerned Gaydon said: "A key strength of the Australian model is its simple, straight forward legislation, as well the major banks' willingness to work together to achieve almost identical structures besides minor differences in their respective collateral pools." Gaydon also stressed the importance of releasing monthly updates on the performances of the bank's mortgage portfolios, which are publically available on their websites. He contrasted the high level of transparency here with a lot of older European issuers where updates were quarterly and less detailed than the Australian model. Total Australian covered bond issuance since Nov. 2011 Principal Total Currency Australian 12,300,000,000 dollar Euro 10,994,708,250 Pound sterling 2,337,265,000 Norwegian 1,964,962,500 kroner Swiss franc 1,660,350,000 US dollar 11,605,900,000 Total 40,863,185,750
- Insight: How U.S. spying cost Boeing multibillion-dollar jet contract
- Exclusive: Secret contract tied NSA and security industry pioneer |
- With Fed out of the way, what's next on Wall Street?
- Yemeni al Qaeda says attack on hospital was mistake
- Insight: For Chinese farmers, a rare welcome in Russia's Far East