Small ADIs welcome at the covered bond party
Fixed-income fund managers would welcome the entry of lower-rated issuers into the covered bond market, although they fear small issuers would be hard-pressed to meet their liquidity requirements.Delegates at yesterday's Euromoney covered bond forum in Sydney focused on the role non-AAA issuers might play in the development of the Australian covered bond market.So far, the Big Four banks and Suncorp have issued about A$30 billion of covered bonds - all of it rated AAA. These issuers' total issuance capacity is $120 billion to $130 billion (given they may use this form of funding up to a cap of eight per cent of assets).Royal Bank of Scotland's head of covered bond origination, Christoph Anhamm, said the market would benefit from a greater diversity of issuers offering a variety of names, terms and ratings.Tyndall Investment Management's head of credit, John Sorrell, said his team would look at any issuer and would be particularly interested in financial institutions to which it did not already have exposure.Sorrell said Tyndall had made one covered bond investment, which accounted for five per cent of the group's $10 billion worth of credit securities.It had not made more investments because it believed senior, unsecured issues from the big banks were a better investment.Aberdeen Asset Management's senior investment manager, John Manning, said he would welcome issuance by non-AAA rated issuers because it would offer him diversification.Aberdeen has invested in two covered bond issues, these make up 12 per cent of the financial holdings in its $14 billion fixed-income portfolio.Westpac Institutional Bank's director of ABS strategy, David Goodman, said the problem for small investors would be that their deals would be illiquid. Goodman said Suncorp's covered bond issue used up 40 per cent of its capacity.