Domestic banks drive record bond issuance volumes

For Australian corporate bond issuance, 2009 has been a year without comparison. Issuance has broken the $100 billion level in the domestic market, leaving the 2006 record of $62 billion way behind.

The composition of the issuance substantially changed over the course of the year.

At the end of the first quarter the domestic banks (excluding the local operations of international banks) accounted for 87 per cent of total placement of bonds. In the last quarter issuance by banks accounted for only 25 per cent.

For the year overall, the domestic banks account for 47 per cent of total issuance, the local operations of international banks account for 29 per cent, and "kangaroo" bonds from foreign financiers 21 per cent.

Bonds from corporate Australia outside of the financial sector represented just 3.5 per cent of the investment volume.

Surprisingly, the domestic banks accounted for 65 per cent of total issuance in 2008.

Another measure of the shifting patterns is the pattern of monthly issuance. In December 2008 banks sold a massive $8.4 billion in bonds after the Commonwealth government guarantee became available. This monthly total was not matched in 2009, with only the January total of $7.3 billion coming close.

So far in December 2009 the local banks have issued just A$1.5 billion of bonds. Reliance on the local market seems to be heading back to historical levels - only $10.8 billion of bonds were issued by the local banks in 2007.

This year the local banks have sold $47 billion of bonds in the domestic market, of which almost $29 billion carried an Australian government guarantee. However, government-guaranteed issuance by the four major banks after the end of the first quarter was sparse, with only A$4.2 billion raised since.

Offshore, the banks have issued a staggering $155 billion of bonds (of which $89 billion was government guaranteed) - more than twice the 2008 total of $77.5 billion.

Issuance in the second and third quarters slowed after the equivalent of $38.9 billion of bonds were issued in the first quarter, but so far this quarter the banks have issued the equivalent of $52.3 billion of bonds.

Given that Reserve Bank Deputy Governor, Ric Battellino, said in a speech last week that the banks have not increased their reliance on international markets for debt funding in recent years, how can this be?

Well, a lot of previously short-term offshore borrowings have been converted into long-term debt. The banks have been lengthening their debt maturity profile this year and these issuance volumes would suggest that they have been quite successful in doing so.

Total offshore issuance by Australian borrowers this year comes to the equivalent of $186 billion with the banks accounting for 84 per cent of the total. A further 14 per cent is accounted for by corporate Australia. So 2009 is another record year for international bond issuance.