Canberra bid to bolster corporate bond market
The federal government will on Friday publish draft legislation designed to deepen the domestic corporate bond market by tapping billions in household savings.
The local market for corporate bonds has long been neglected because of the expense and difficulty of issuing debt to retail investors.
For companies, this has often meant raising debt overseas is more attractive. It has also meant there is a shortage of relatively safe financial assets that offer a fixed stream of income, as bonds do.
To stimulate the market, Treasury proposes to allow firms to issue bonds under a simpler prospectus when targeting retail investors, while also easing the liability burden on directors.
Acting Treasurer Penny Wong said the changes would also aim to direct more of the nation's $1.4 trillion super pool into the hands of Australian firms, rather than have companies borrow overseas.
"A vibrant corporate bond market is key to harnessing our national superannuation savings and enabling us to domestically fund more productive investment in our economy and, in turn, reduce our reliance on offshore wholesale funding markets," Senator Wong said.
Australian super funds typically hold less than 15 per cent of assets in bonds, compared with an average of 55 per cent for pension funds across developed world economies.
Stimulating the bond market is also seen as a way to lift Australia's chances of becoming a regional hub for financial services, and was a recommendation of a 2010 official review by former Macquarie banker Mark Johnson.
"These reforms are an important part of promoting Australia as a leading financial services hub and securing our reputation as one of the most attractive investment destinations in the world," Senator Wong said.
From March this year, it is expected that small investors will be able to trade Commonwealth government bonds on the Australian Securities Exchange.
Frequently Asked Questions about this Article…
The federal government has released draft legislation designed to deepen the domestic corporate bond market by making it easier and cheaper for firms to issue bonds to retail investors. Measures include allowing companies to use a simpler prospectus when targeting retail investors and easing some director liability rules to reduce the cost and complexity of issuing retail bonds.
By lowering the expense and regulatory hurdles for firms to issue retail bonds—for example through a simpler prospectus—more corporate bonds should be offered to the public. That will let small investors more easily buy fixed‑income securities issued by well‑known companies, providing another way to earn regular income from their savings.
A simpler prospectus reduces the paperwork and cost for firms to offer bonds to retail investors, which can increase the number of retail bond issues. Easing director liability aims to lower the legal burden on company directors when issuing bonds, encouraging more companies to offer retail debt and thus expanding investor access to these products.
The government hopes the reforms will channel more of the nation’s large superannuation pool—about $1.4 trillion—into Australian corporate bonds rather than overseas borrowing. The article notes Australian super funds currently hold less than 15% of assets in bonds versus about 55% for pensions in other developed economies, so increased domestic bond supply could boost local fixed‑income allocations.
The local corporate bond market has been neglected because issuing debt to retail investors has been expensive and difficult under existing rules. That has often made overseas debt markets a more attractive option for companies seeking to raise funds.
A deeper retail corporate bond market could provide everyday investors with more relatively safe financial assets that pay a fixed stream of income, diversifying portfolios beyond shares and bank deposits. Greater availability of corporate bonds could also offer new income-producing options for savers and retirees.
The article says that from March this year it is expected small investors will be able to trade Commonwealth government bonds on the Australian Securities Exchange (ASX). The draft legislation aims to make retail corporate bond issuance simpler, which should increase trading opportunities over time.
Yes. Stimulating the corporate bond market is seen as a way to boost Australia’s chances of becoming a regional financial services hub. The idea follows recommendations from a 2010 review by former Macquarie banker Mark Johnson, and the government says the reforms support Australia’s reputation as an attractive investment destination.
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