Companies are looking more to less traditional debt financing
Australia’s retail bond market will get a boost this year as demand increases for infrastructure bonds and more and more companies issue kangaroo bonds, a top lawyer predicts.
MinterEllison partner James Hutton identified a change in retail investor behaviour, saying investors are becoming more sophisticated as they look for better returns from investments. He said that traditionally, Australian retail investors have readily invested directly or indirectly in equity investments in infrastructure operators, and bonds were limited to sophisticated investors.
“With the prevailing low interest rate environment, retail investors and their advisers are looking to higher yields available on corporate debt compared to term deposits,” he said. “Brownfield infrastructure bonds with lower risk producing income from existing assets and stability of cash flow are likely to be attractive to retail investors.”
The trend’s emergence is likely due to self-managed super-funds looking to diversify their investment portfolio in the booming infrastructure sector, he said.
Meanwhile, Hutton also predicts more kangaroo bonds – Australian-denominated bonds which are issued by international organisations in the Australian market and are governed by the country’s securities laws – to be issued this year further fuelling retail investor demand.
Last year, Apple launched its second kangaroo bond, raising $1.425bn. Its first issuance, in 2015, raised $2.25bn. The Coca-Cola Company’s $1bn issuance and the World Bank’s $1.4bn issuance are also prime examples of a growing kangaroo bonds market, Hutton said.
“We anticipate the appetite by Australian investors for such bonds to rise in 2017 given investors' desire to increase diversification whilst maintaining yield on their investments. It’s a ‘watch this space’ scenario for the first half of the year, when we expect to see some further kangaroo bonds action,” he said.