By Roger J Kerr
The strong investor demand witnessed for the recent Genesis Energy and 'Z'/Greenstone Energy corporate bond issues indicates a severe shortage of supply of new bonds coming onto the market.
The reasons for the supply shortage are three-fold:
-Large corporate borrowers tapping the US Private Placement debt market to obtain the long tenors they desire, thus no need for them to issue in the local market.
- Local government issuers holding-off until the new Local Government Funding Agency is in place later in the year where they should be able to obtain their debt at a smaller credit margin for longer terms.
- The banks now have their funding books in order to meet RBNZ core funding ratio requirements and are not experiencing much lending growth on the other side.
Therefore, the way seems very open for both old and new names to issue debt through the local corporate bond market.
From the survey of weighted-average debt terms conducted by APRM in June, such names as WaterCare and Contact Energy would appear to have a need to lengthen their debt maturities.
Telecom NZ is in a state of flux with the split into two companies therefore will not be an issuer at this time. There have been market rumours that Air New Zealand is contemplating a domestic corporate bond issue for the first time. Some listed property trusts still appear over-reliant on short-term bank debt; however they are arguably a harder sell to investors in terms of their industry sector risk.
Fletcher Building has issued subordinated Capital Notes in the domestic market previously and would be a popular name for a senior bond issue.
Fonterra has recently issued debt in the Australian market; however their name would also attract heavy investor support.
Listed global freight company, Mainfreight has probably reached the debt levels that they should get a credit rating and diversify away from solely bank debt.
Investors are advised to stick to the quality names mentioned above and avoid the near-junk bonds that some investors are currently painfully experiencing a restructure of with Blue Star Print Group.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. This column was written before the Monday quake. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
1 Comments
I've got a good opportunity on the cards right now requiring a couple of $m funding through NZ debt placement. The end result would be strong dividend flows back into NZ. But f$$k it that's a no go because Bill English could dump our Board and presumably wipe any equity shareholders have invested. Good one Bill, FMA and the RBNZ. They are totally killing free enterprise.
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