WHAT CHANGES HAVE YOU SEEN IN THE AUSTRALIAN CORPORATE BOND
MARKET IN RECENT TIMES?
Over the last 2 years we have seen increased issuance of sub
investment grade and unrated corporate bonds opening up the
domestic bond market for mid sized Australian corporates across a
range of industries.
Previously, access to the bond market was generally only
available to larger investment grade rated corporates with at least
$500 million in debt funding requirements, largely driven by
institutional investor demand. Now, smaller retail type investors,
such as self managed super funds and high net worth individuals,
can invest in bonds directly with a minimum investment of $50,000.
This in turn has allowed mid sized corporates with lower debt
funding requirements to access the bond market. FIIG has been at
the forefront of this development.
WHAT ARE SOME OF THE TRENDS THAT MIGHT INFLUENCE THE EVOLUTION
OF THE AUSTRALIAN BOND MARKET IN COMING YEARS?
The aging population of Australia has and will continue to grow
our superannuation investment pool, including self managed super
funds. As people move into retirement they generally seek lower
risk regular income as opposed to capital growth. Australian
investors are also becoming more aware of their ability to invest
directly in fixed income products. Consequently, we expect to see
increased allocations to the fixed income asset class, including
The ability to tap the bond market for unrated debt capital is
becoming more widely known in the corporate sector. Australian
corporates are also seeking to diversify and lengthen their funding
sources. Consequently, we expect to see more and more mid sized
corporates issuing unrated debt over the coming years.
FIIG Securities, Australia's largest independent
fixed income specialist, provides private and corporate investors
with direct access to a range of fixed income investments and
issuers with reliable access to debt capital. FIIG has placed over
$1.6 billion in long-term bonds for both rated and unrated debt
WHAT PRODUCTS ARE GAINING ACCEPTANCE WITH AUSTRALIAN
In fixed income markets, high yield unrated debt is increasingly
gaining acceptance with investors. With low interest rates expected
to stay around for some time, investors are increasingly looking
for higher yielding fixed income investments to meet their cash
needs and are prepared to take on a little more risk to get them.
This means they are often prepared to invest in bonds that provide
greater flexibility and more competitive terms than the bank market
in return for a modest premium.
WHAT TYPE OF PROPERTY GROUPS CAN ACCESS THE DEBT CAPITAL
Bond investors want regular and reliable fixed income so issuers
need to have a similar cashflow profile. Property groups with
regular income to support the payment of interest on their bonds
can best access debt capital markets.
For example, last year FIIG raised $75 million for the ASX
listed 360 Capital Group at 6.9% for a 5 year term - flexible
unrated debt that was unsecured and ranked behind secured bank
debt. Our capital provided them with the flexibility to grow their
property funds management business while not diluting equity.
We also structure deals to suit different circumstances. In late
2013, ASX listed Payce Consolidated was seeking $50 million in
holding company debt finance to secure new residential development
sites. At the same time, Payce was half way through completing the
construction of a $330 million mixed use property in Sydney.
Confirming that the construction risk was well mitigated and that
Payce would soon have a $200 million investment property with
regular income to underpin the bond, FIIG developed a bond
structure that protected the interests of bondholders while giving
Payce a piece of long term capital (5 years) that suited their
IS FUG UNDERTAKING ANY SPECIFIC RESEARCH?
FIIG will shortly launch the Smart Income Guide to 2015 focusing
on fixed income assets and the market factors that will drive
investment in 2015. We expect this report to be available on our
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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