Retail investors could deliver additional funding to corporate Australia if the nation's stunted corporate bond market was given the room to grow, according to ANZ.
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.
Frequently Asked Questions about this Article…
How much additional funding could retail investors provide to corporate Australia through a deeper corporate bond market?
ANZ estimates that retail investors could deliver up to $40 billion in additional funding to corporate Australia if the domestic corporate bond market was allowed to grow and become more accessible to everyday investors.
What changes are being proposed to help retail investors access corporate bonds on the ASX?
Options under review include allowing retail investors to trade Commonwealth government bonds on the ASX and simplifying issuance rules—such as permitting a base or shelf prospectus and shorter term sheets—to make corporate bonds easier for ASX-listed companies to issue to the retail market.
Why is Australia’s corporate bond market described as “stunted” and why does that matter to investors?
The article says Australia has lagged other major markets in bond issuance and sales of corporate bonds to retail investors are almost non-existent. A shallow bond market limits funding options for companies, reduces liquidity for investors, and can leave firms more dependent on offshore funding.
How would a deeper retail corporate bond market benefit everyday (mums and dads) investors?
A deeper market would give retail investors easier access to fixed‑income products issued by Australian corporates, offering a potentially less volatile alternative to equities—something many retirees and conservative investors may prefer.
What is a base or shelf prospectus and how could it help lower the cost of issuing corporate bonds?
ANZ urged the government to allow a base or shelf prospectus, which lets issuers publish a simple term sheet and then return to the market to raise additional funds without preparing a full equity‑style prospectus each time. That simplification could reduce the expense and administrative burden of issuing bonds in Australia.
What did National Australia Bank (NAB) propose to simplify corporate bond issuance for ASX-listed companies?
Rick Sawers of NAB suggested allowing ASX‑listed companies to issue standard corporate bonds using a two‑page term sheet, supported by information already provided under continuous disclosure rules for equities, to make bond issuance simpler and cheaper.
Will a bigger retail bond market help small and mid-sized businesses access funding?
Yes. The article notes that developing a corporate bond market could free up crucial bank funding for small and mid‑sized firms that often don’t have the same access to capital markets as larger corporates.
Is there evidence retail investors want more debt products from companies?
According to the article, recent hybrid share issues demonstrated strong retail investor demand for debt-style products, and ANZ expects demand for corporate bonds to rise as baby boomers move into retirement and shift toward less volatile fixed‑income investments.
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