The corporate conversation

Transcription

1 The corporate conversation KangaNews s Corporate Debt Summit took place in October 2014 with headline sponsorship, for the fourth year running, from Westpac Institutional Bank. The latest summit attracted its biggest-ever crowd, to discuss the state of play across the Australian market. KangaNews is proud to present a flavour of one of the credit market s most valued events. When the capital markets turn it is going to be quite scary. However, from the perspective of the economy it is important to understand that the termination of QE3 does not mean that the liquidity associated with the Fed has dried up. The banks are holding around US$3 trillion in excess reserves with the Fed. This money is ready to be lent out to corporate America should demand lift. BILL EVANS WESTPAC BANKING CORPORATION 29

2 CORPORATE DEBT SUMMIT If I am going to buy bonds in primary I need to be safe in the knowledge I will be able to sell them in secondary. If I buy bonds knowing I won t be able to easily sell them, the spread I demand will be greater. TIM VAN KLAVEREN UBS GLOBAL ASSET MANAGEMENT It is a misnomer that super funds do not want to bear construction risk. When the Aquasure project was first put together, in 2009, it had support from, among others, a substantial super fund. Investors will take risk if they assess that the reward being offered is commensurate to their assessments of the risk. MATT BRASSINGTON AQUASURE Longer tenors have been available in capital markets, particularly as projects establish operating track records and this has certainly been the case for Australian issuers in the EMTN and USPP markets. ARNON MUSIKER MOODY S INVESTORS SERVICE Less than 1 per cent of global indices is denominated in Australian dollars, so Australian bonds just aren t on global investors radar. If you re going to play Australia, you play in the currency. If you want Australian exposure, as we do for our global funds, we take views on currency and rates. I don t know any global fund manager looking to take Australian corporate debt in Australian dollars. SARAH PERCY-DOVE BNY MELLON INVESTMENT MANAGEMENT 30 KANGANEWS DEC14/JAN15

3 The movement of capital and funds is much more curtailed today than it used to be. This means we have to be smarter and more forward-thinking about how we execute, and we have to continually be better at forecasting. This sounds simple, but integrating it into a process is something we have had to learn to do much better over time. CURT ZUBER WESTPAC BANKING CORPORATION I see a lot of issuers run to the US because they are scared to test the market here. Many of them are scared to do a non-deal roadshow because if they don t bring a deal off the back of it they presume that s viewed as a failure. PHILLIP STRANO VICTORIAN FUNDS MANAGEMENT CORPORATION In the PPP space we see different approaches to risk from deal to deal. This consumes an inordinate amount of time and adds to the cost and complexity of the bid. It also limits the number of investors which can participate. CLAIRE ROGERS KING & WOOD MALLESONS Super funds, many of whom are our clients, face a real dilemma. They have yield thresholds that were set when rates were much higher. Our experience is that these haven t been adjusted too much even though rates have collapsed. We suggest these clients lock in spread, go floating rate and take a long-term view of what the risk-adjusted return should be. BOB SAHOTA CHALLENGER INVESTMENT PARTNERS 31

4 CORPORATE DEBT SUMMIT It s hard to get a feel for the capacity of the domestic market the answer depends who you ask and when. It is a small market and this makes execution more difficult than offshore. That said, we want to be active in this market and understand that we need to engage with domestic investors more. RICHARD WILLIAMS SCENTRE GROUP It is no surprise that a China hard landing tops the list of risks to the Australian credit market. Our sovereign analysts attach a low probability to a China hard-landing scenario at present, mainly because of the Chinese authorities capacity to loosen monetary policy. But that s not to say that don t see risks. JOHN MILES FITCH RATINGS It is very much an issuer s market. If I was a triple-b rated company I d be issuing as much debt for as long as possible given where spreads are. The challenge is that right at the time in which we ve been calling for more triple-b issuance and a longer-dated market investors are becoming less willing to hold higher-beta names purely on a valuation basis. MIHKEL KASE SCHRODER ASSET MANAGEMENT 32 KANGANEWS DEC14/JAN15

5 As an investor, I d like the Australian domestic market to be able to provide me with better diversity, an increased range of sectors from which to buy bonds and increased bondholder credit protection. Some of the measures that came in as a result of the financial crisis secured debt issuance, change of control clauses, coupon and margin step ups and other covenants have mostly gone away. VIVEK PRABHU PERPETUAL INVESTMENTS We are often approached to participate in innovative deals. I certainly encourage discussion but I would emphasise that innovation doesn t always have to be a convoluted structure. I don t mind complexity, but too many deals have been put before us which in my view contain too much optionality for too little reward. JOHN SORRELL NIKKO ASSET MANAGEMENT There is inevitably a size factor that has an impact on domestic-market discussions, whether it s a vanilla corporate deal or something more structured. But I don t think it s a question of a lack of capability in the domestic market: I think it s getting the right opportunities to the right people. MICHAEL LARKIN LEND LEASE If there s one thing that would improve the Australian market, it would be if an issuer could always assume it is open for business. Corporates are just not geared up to doing things instantly and there will often be a long gestation period before we are ready to launch. We d like to know a particular market will still be open after we receive board approval to issue into it. ASRAR RAHMAN WOOLWORTHS The experience with QE1 and QE2 shows that the end stage has a sharp lift in volatility, and we re in the early stages of another such episode now. If the wind-up of QE3 and the non-replacement by a QE4 does really unsettle the markets and in my view this is extremely unlikely the liquidity which in the past has been provided by market makers has been severely curtailed by the Dodd-Frank regulations. BILL EVANS WESTPAC BANKING CORPORATION 33