Overhaul for corporate bond market

BLUE-CHIP companies would find it easier to sell "IOUs" to retail investors, under a government plan to boost the range of lower-risk assets available to investors.

BLUE-CHIP companies would find it easier to sell "IOUs" to retail investors, under a government plan to boost the range of lower-risk assets available to investors.

The Treasurer, Wayne Swan, will today unveil plans to bolster the domestic corporate bond market, which has long been neglected by companies because of the expense of issuing debt to retail investors.

In a bid to cut red tape that raises the cost of issuing bonds, a discussion paper released by Mr Swan will suggest allowing companies to issue shorter prospectus documents when selling bonds.

The paper will also propose watering down director liability laws, saying today's rules require extensive oversight of bond issues by directors, raising their cost.

Highly rated bonds - which pay interest and are considered fairly secure - have enjoyed a rise in popularity since the global financial crisis, boosted by investors seeking out greater safety.

The discussion paper also says a bigger bond market may allow investors to diversify into assets that provide a steady income stream before and during retirement.

Mr Swan will float the proposals at a meeting of regulators and market participants in Sydney.

"The government considers the development of a deeper and more liquid corporate bond market an important issue for the broader development of our financial sector and more importantly our economy," Mr Swan will say. "This is increasingly important at a time when international debt markets are facing such difficult headwinds."

Analysts say the retail corporate bond market is underdeveloped because it is more expensive than borrowing from banks or tapping wholesale markets.

But the chief executive of Australia Ratings, Chris Dalton, said there was growing demand for safer assets such as bonds after the recent poor performance of sharemarkets.

"Fundamentally there's a lack of fixed income products available to investors, and ... the volatility in the equity markets ... has caused people to rebalance their risk appetite."

However he said the proposals would only go part of the way towards boosting the bond market's size, which ultimately depended on how cost effective bonds were as a funding source.

In a related move, the government is also pushing ahead with a plan to allow retail investors to trade government bonds on the stock exchange as soon as next year.

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