Australia eyes simpler rules to feed retail bond growth

Wed Mar 20, 2013 1:19am EDT

* Govt to allow retail investors to access same bonds as professionals

* Potential to see retail bond issues double

* Telco, health firms, retail companies highly sought borrowers

By Cecile Lefort

SYDNEY, March 20 (Reuters) - Australia's government is proposing to simplify the sale of retail bonds in a move that could offer firms an alternative to bank funding and see a large increase in issuance.

Among the new measures proposed by the Labor government on Wednesday, the most important one is to allow individual buyers to access nearly all the same securities as professional buyers through a listing on the stock exchange.

"That is absolutely fabulous... it has the potential to be a game changer," said Phil Bayley, an academic and debt capital market consultant at ADCM.

Unlike New Zealand, Switzerland or Japan, retail bond offers are rare in Australia where bonds are typically bought by professional investors.

However, since the global financial crisis hit, the Australian government has been promoting the nascent retail bond market as an alternative source of funding for companies.

Efforts have been slowly paying off, with 2013 shaping up as a bumper year. East & Partners estimates as much as A$17 billion ($17.6 billion) could be raised by December.

The bond listing initiative could see retail issuance soar to at least A$35 billion per year in the near-term, says ADCM's Bayley.

Possible borrowers could include telecom companies Telstra Optus, Vodafone as well as retailer JB Hi-Fi and health insurance firms Medibank and NIB, all of which would be highly sought names, according to bankers.

Out of the A$350 billion ($363.8 billion) or so of bonds outstanding in Australia by non-government entities, less than 5 percent are in the hands of individual investors. That's a pittance, according to Barry Ziegler, head of retail fixed income at Bell Potter Securities.

"We are so far behind," he said, pointing to New Zealand's flourishing retail bond market.

A major impediment for borrowers in Australia has been the requirement for a costly and time-consuming bond prospectus.

Even as the governmen proposes to simplify this process, Ziegler would prefer it go farther and require just a term sheet as is done with professional investors.

Fuelling demand for retail bonds in Australia is a massive rise in the number of individuals managing their own superannuation funds -- the national mandatory pension scheme.

They now account for A$418 billion of the A$1.4 trillion superannuation industry, an increase of more than 30 percent in just five years, government statistics showed.

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