Banks the force behind offshore bond revival
As at the end of August 2016, international bond issuance by Australian financial and non-financial corporate borrowers exceeded the equivalent of A$114 billion. Extrapolating to the end of the year, total issuance is set to exceed A$170 billion.If this level of issuance is achieved, it will be the largest volume of international bond issuance since 2009, when the total went past A$186 billion. Issuance that year was driven by the banks taking full advantage of the AAA guarantee leased from the Federal government late in 2008, to issue more than A$155 billion of bonds on their own.Issuance so far this year has also been dominated by the banks, although on the basis of their own credit standing rather than with a borrowed guarantee. The banks account for A$99 billion of issuance to the end of August this year, which is well ahead of the A$88 billion of international bonds that have matured, or the banks' have maturing, over the course of this year. The banks have undertaken a large amount of new borrowing and have also taken the opportunity to extend their debt maturity profile, with the term to maturity for many bond issues exceeding ten years. A$34.5 billion of year to date issuance has a term to maturity greater than ten years and the banks account for A$22 billion of this or almost two-thirds.Another interesting observation is the growing popularity of the Dim Sum (or renminbi-denominated) market. At A$3.7 billion, year to date issuance into that market is already well ahead of the A$2.4 billion achieved last year, when the banks first gained access.The banks have been the only issuers in the Dim Sum market this year, and in recent months the market has become a popular source of one year funds, as the banks look for alternatives to the US certificate of deposit market. Almost one-third of the issuance into the Dim Sum market this year has had a term to maturity of just one year.Covered bond issuance by the banks is running roughly in line with the issuance seen last year. Year to date issuance stands at A$10 billion compared with A$14 billion in 2015.One noticeable difference in international issuance this year is the relative absence of non-bank issuers. Total international issuance last year amounted to the equivalent of more than A$142 billion and of this non-bank issuers accounted for 28 per cent. For the year to the end of August 2016, non-bank issues account for just 13 per cent of issuance.Non-bank issuance in 2015 was boosted by issuers from the resource sector selling the equivalent of more than A$17 billion of bonds, with most of the funds borrowed by BHP and APT Pipelines. Neither have been active in international market this year and neither has anyone else in significant volume.