* Aussie retail bonds could hit record A$17 bln in 2013
* 20 small firms in discussion over bond debut
* Self-managed pension fund pools targeted
By Cecile Lefort
SYDNEY, Feb 21 Australia's retail bond market is
seeing a strong start this year with companies large and small
queuing up to borrow record amounts through higher-yielding
placements aimed at individual investors.
At the same time, brokerage firms are grabbing a small, but
growing, market share from banks reluctant to lend to non-core
clients due to tight capital and liquidity rules in the wake of
the 2008/09 global financial crisis.
This year is shaping up as a bumper year with banking
research firm East & Partners estimating as much as A$17 billion
could be raised. At the same time last year, retail bond
issuance had yet to start.
It would follow a record high of A$13 billion sold last
year, data from Thomson Reuters showed, as individual investors
chase higher returns and companies seek to diversify their
source of funding away from banks and large asset management
National Australia Bank, the nation's largest
lender by assets, said late on Wednesday it had pre-sold at
least A$1.4 billion ($1.44 billion) of listed hybrid notes.
Last week, rival Westpac Banking Corp raised A$1.25
billion of similar securities.
Demand was so high that both issue sizes were more than
doubled. They will yield a little more than 6 percent, a level
that was on the tight end of the marketing range.
While Australian household names such as telecom firm
Telstra, mining giant BHP Billiton or
department store David Jones Ltd would be highly sought
should they come to market, others far less known could also
make an entrance.
"We are mostly looking to bring unrated companies with
stable income, those who have been precluded from entering
traditional debt capital markets," said Tony Perkins, head of
fixed income origination at brokerage firm FIIG.
Bond origination is a new business for FIIG which, along
with brokers Bell Potter and Evans & Partners, has been
arranging placements for new borrowers which have not been rated
by credit rating agencies.
A private wealth manager with direct knowledge of the talks
said as many as 20 small-to-medium-sized firms, including
industrials and financial concerns, are in discussion to sell
He declined to be identified for reasons of commercial
sensitivity, adding candidates were considering all types of
debt instruments including rated and unrated, listed or
privately sold, as well as some featuring equity components such
as hybrid securities.
Late last year, Silver Chef, a catering firm with a
market capitalisation of just A$158 million, paved the way with
a A$30 million debut issue of six-year notes paying a coupon of
FIIG, which arranged the offer, said 175 investors snapped
up the unrated notes within 24 hours and allowed the issuer to
receive committed financing for a far longer period than would
be available from major banks.
Indeed, banks across the world have been tightening lending,
forcing a number of businesses to look elsewhere for funds.
Small and medium firms were particularly hard hit.
While market participants said such borrowers would probably
raise less than A$1 billion in total, offers aimed at individual
investors are rare in Australia where bond issues are typically
reserved for professional asset managers.
But with local government bond yields fetching just 4
percent and the stock market getting expensive, having
jumped 27 percent since June, individual investors are being
forced to source returns elsewhere.
"Anything with a coupon near 8 percent is particularly
eye-catching," said the private wealth fund manager.
Helping demand for retail bonds is a massive rise in the
number of Australians managing their own superannuation funds -
retirement accounts required by law.
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.
But with around 80 percent of assets placed in equities, a
high ratio by international standards, some retail investors are
looking to diversify their holdings.
"There is an increased focus by investors on the stability
of returns and capital," said FIIG's Perkins.