Shoulders to the wheel on corporate bond market

TREASURY officials are due to meet some of the biggest bond investors and bank finance executives this morning amid frustration about the slow pace of development of Australia's blue-chip corporate bond market.

TREASURY officials are due to meet some of the biggest bond investors and bank finance executives this morning amid frustration about the slow pace of development of Australia's blue-chip corporate bond market.

The meeting is backed by the Australian Securitisation Forum and will include some of the country's largest superannuation funds. It comes as big-name corporations have opted against so-called vanilla-style corporate bonds to raise funds. Instead, companies including Westpac and ANZ have issued billions of dollars' worth of higher risk hybrid-style shares.

Last week, Caltex launched a $300 million hybrid note. APA Group and Crown have both said they are considering large issues.

Developing the corporate bond market was a key recommendation of a report, in 2010, by the Australian Financial Centre Forum, chaired by Mark Johnson. The focus to date has been on stimulating retail investment interest in bonds.

Big business has blamed an underdeveloped corporate bond market for its decision to raise funds offshore. Meanwhile, bond investors have pointed to a lack of quality offerings for their low exposure to bonds.

Australian super funds have less than 15 per cent of their portfolios tied up in corporate bonds, about half the percentage of their global counterparts.

Analysts have argued that a deeper corporate bond market would offer a new source of funding for corporations, and increase liquidity in the market.

ANZ estimates show that as much as $40 billion is readily accessible from retail investors, allowing corporations to diversify and expand their funding base.

The bond market meetings are taking place as the federal government continues to aim for government bonds being traded on the ASX by the end of the year, opening potentially billions of dollars' worth of new investments to retail investors.

Negotiations between the ASX and the government's funding arm, the Australian Office of Financial Management, are reaching the final stages to allow the listing of government bonds. Market rules are being thrashed out and operational procedures are being finalised. The move has been promised for years but has failed to get off the ground because of regulatory complexities.

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