* 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 institutions.
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 longer duration.
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 balance-sheet bid.”
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 table.
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 2014s.
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 well.”