RETAIL investors could deliver as much as $40 billion in additional funding to corporate Australia if the nation's stunted corporate bond market was given the room to grow, according to new estimates by ANZ.
The figures were provided to a Treasury review aimed at developing a deep and liquid retail corporate bond market.
Among options being reviewed is to allow retail investors to trade in Commonwealth government bonds on the Australian Securities Exchange and watering down directors' liability when it comes to issuing corporate bonds.
Although Australia's equity market has grown fast, it has substantially lagged behind other major centres with regard to selling bonds. In addition, sales of corporate bonds to retail investors so-called "mums and dads" is almost non-existent.
Demand for corporate bonds is expected to escalate as the baby boomer generation moves into retirement and switches investments away from equities towards less volatile fixed-income products.
ANZ's head of structured products Adam Vise said retail investors would help deepen the corporate bond market, which will provide a new source of funding business, while improving liquidity.
"We believe up to $40 billion is readily accessible from the retail market, allowing corporates to diversify and expand their funding base," Mr Vise said.
ANZ urged the government to allow a base or a shelf prospectus, which allows issuers to go back to the market to raise additional funds through the publication of a simple term sheet. Mr Vise also warned the lack of a deep domestic bond market left Australian companies vulnerable when it came to tapping offshore investors for funds.
"The freezing of global liquidity in September 2008 and the subsequent difficulty experienced by Australian corporates in refinancing debt gives rise to questions about the depth of the domestic capital markets and in particular Australian corporates' dependence on foreign debt capital," he said.
Potential issuers often blame the expense of issuing bonds in Australia, particularly given demands to prepare an equity-style prospectus. Many issuers also worry about the lack of liquidity in the market.
National Australia Bank's head of wholesale banking, Rick Sawers, urged the government to allow ASX-listed companies issuing standard corporate bonds through a two-page term sheet, supported by information already available under continuous disclosure rules for equities.
The development of a corporate bond market would help free up crucial bank funding for small and mid-sized businesses that traditionally do not have the same level of access to capital markets, Mr Sawers said.
The string of recent hybrid share issues demonstrated there was strong retail investor demand for debt, he added.