Home / Australian credit market looks more challenging

(pictured: Kate Stewart)
Australasia’s largest corporates are bearish about the coming 12 months, expecting more challenging financing markets in 2016, according to the results of a survey by BNP Paribas and Moody’s to be published today (November 30).
Just 9 per cent of chief financial officers and corporate treasury managers expect credit spreads to be ‘highly conducive’ next year, well down on the 56 per cent who thought so positively last year. Almost a quarter (23 per cent) expect spreads to be either “fairly challenging” or “very challenging” in 2016, according to the annual Corporate Borrowers’ Intentions outlook.
Whereas 90 per cent of Australian and New Zealand borrowers rated availability of liquidity as highly conducive in 2014, in this year’s survey the equivalent proportion fell to 38 per cent. BNP and Moody’s surveyed 50 large companies in the study.
Despite expected rises in some global rates (especially for UK and US rates), around a quarter (26 per cent) of corporates expect to increase their gearing in the next 12 months.
Just 20 per cent expect to reduce their gearing, the survey outlook found.
Debt capital markets remain among the most attractive sources of funds for most corporates. More than half of respondents (52 per cent) expect to increase their use of capital markets over the next year.
“Firms are maintaining conservative debt targets and continue to focus on diversifying and lengthening the tenor of their funding, said Kate Stewart, head of debt capital markets at BNP Paribas. “More than half the survey respondents say their company issues debt securities on an annual basis, while nearly 90 per cent say they issue at least once every two-three years.”
Just 8 per cent expect to increase their proportion of bank funding. This challenges the commonly held notion that Australasian corporates are reliant on bank funding. Those who anticipate movement in loan funding are expecting more expensive loans, a reversal of the 2014 trend.
Issuers expect slightly fewer markets will offer optimal funding conditions next year – these being Australia, the US and Europe.
Stewart said there were a number of reasons Europe is expected to return to favour for debt issued by Australasian corporates as the cost of landed debt (swapped into Australian dollars) remains comparatively low.
While Australia’s own bond market is also attractive for many issuers, it can’t always provide the kinds of volumes and tenors more readily available overseas.
Patrick Winsbury, associate managing director of corporate finance at Moody’s Investors Service, said: “With the increased community focus on environmental issues, we expect green bond issuance to increase and diversify; especially as governments around the globe seek to develop cleaner urban infrastructure and energy production and as more institutional investors seek to demonstrate that they are responsible investors.
“While the survey found two-thirds of Australasian issuers are interested in green bonds, only a minority (2 per cent) are currently exploring issuing such bonds. A third said they were not interested in this source of funding – despite them appealing to a wider range of investors and generally being priced in line with generic bond curves,” said Winsbury.
Of the CFOs and other finance executive surveyed, in September, the majority described their companies as investment-grade rated, and the largest single cohort – accounting for just over half the total responses – came from the triple-B sector.