* RBC Sydney prints record A$1.5bn bond
* Deal comes right after record corporate bond by Aurizon
* Market becoming viable funding avenue
By John Weavers
SYDNEY, Oct 25 (IFR) - Royal Bank of Canada, Sydney branch,
turned heads on October 22 with a record-breaking local debut
that showed the Australian dollar market might be deeper than
many had thought.
The A$1.5bn (US$1.448bn) three-year floating-rate note is
the biggest senior unsecured deal to date from any bank other
than the country's four major lenders.
The previous chart topper was Bank of Queensland's A$1.25bn
four-year floater at the end of 2009, which enjoyed the benefit
of a Commonwealth Government guarantee.
RBC's ground-breaking deal came only days after Aurizon
Network rewrote the local corporate record books with its
inaugural offering on October 18.
Aurizon's A$525m 5.75% seven-year bond is the largest Triple
B rated local corporate issue, as well as the country's biggest
seven-year corporate paper.
"The bank was pleased by both the scale and breadth of
demand that enabled it to price this transaction in line with
its US dollar curve," said Enrico Massi, head of debt capital
markets Asia Pacific at RBC Capital Markets.
The elevated demand for these two vastly different offerings
happened even as Australian dollar issuance has topped A$105bn
year to date, almost A$20bn more than the amount sold in the
same period in 2012.
The RBC deal suggests that the Australian market is now able
to absorb foreign bank paper in size and further establishes the
country as a viable funding avenue for global financial
MORE BUT NOT FOR ALL
Paul White, global head of syndicate at ANZ, said the
Australian dollar market continues to become deeper,
particularly for corporates that can issue larger volume and
However, the success and size of individual issues still
depended on the criteria of the issuer, said Peter Dalton, head
of syndicate at Westpac Institutional Bank.
"RBC is a top-notch bank that enjoys scarcity value in
Australian dollars," Dalton said. "Furthermore, its local
presence means it is well known to domestic investors, while the
new bond's repo eligibility helped secure a very strong
RBC Sydney, rated Aa3/AA-/AA, launched its October 2016
notes at a minimum indicative size of A$500m, but an order book
in excess of A$1.8bn meant a far larger offering was on the
Repo eligibility played a key role in that strong demand as
local banks bought 61% of the bonds.
Not all international banks enjoy a local facility,
including another potential Canadian issuer, Toronto Dominion,
which has closed its Australian branch, meaning its notes would
not be repo-eligible.
RBC's notes priced in line with guidance of three-month BBSW
plus 65bp, which is about 5bp above where Australia's similarly
rated major banks at Aa2/AA-/AA- could price a new three-year
floater, according to domestic syndication desks.
They also priced close to RBC's US dollar curve where they
trade around 5bp inside the Aussie majors. That ability to get
similar funding costs from a different investor base could
attract other banks.
RBC is not the only Canadian financial to have tapped the
Australian dollar market this month. On October 18, Canadian
Imperial Bank of Commerce raised A$500m from its first covered
Kangaroo bond in over three years - another three-year floater
that priced to yield 52bp over BBSW.
Bank of Nova Scotia is the only other Canadian bank to have
issued covered bonds in Australian dollars, having put out in
2011 a single A$1bn fixed-rate 5.75% three-year paper, maturing
on January 28 next year.
The success of RBC's two recent offerings can only encourage
BNS to return to the Aussie dollar market to refinance its
In fact, as it gains size, Australia's local market is fast
becoming a stop in global funding forays by global banks.
"The attraction of the Australian dollar market for an
issuer like RBC is that the investor base is new, diverse and
includes both domestic and international buyers," Massi said.
"These investors have good demand for high-quality
international banks, including those from Canada, which, like
Australia, came through the global financial crisis relatively