Three-out-of-five (60%) Australian corporates do not expect credit spreads to start rising before the second half of 2015, according to the BNP Paribas Corporate Borrowers’ Intentions Survey for 2015.
Overall, the BNP Paribas Corporate Borrowers’ Intentions 2015 found:
- Half of Australian corporate treasuries expect yields to increase in the second half of next year.
- A third expect them to rise in the first half of next year.
- Two thirds of corporates fund their debt financing from a mixture of capital markets and loans.
- Only 2% use just loans.
- The domestic market remains the most popular market for corporates, with almost three-out-of-four (72%) of treasuries active in Australian debt capital markets.
- More corporates are looking to offshore capital markets for future funding.
- While one-in-five corporate treasuries are active in the Euro markets, this is expected to increase; as Europe presents cheap funding.
- Debt capital markets are among the most attractive sources of funds for corporates at present.
Since the financial crisis, many Australasian corporates have talked about undergoing a process of diversifying their debt book to be less reliant on bank funding. This process may not yet have completely played out, as a number of corporate issuers still plan to increase their proportional use of capital markets. A one-third of respondents said they expected to increase their proportional use of capital markets funding in the foreseeable future.
This challenges the commonly held notion that Australasian corporates are reliant on bank funding, as the investment-grade sector discloses a significant draw on debt capital markets. More than a quarter of survey respondents say their company’s debt is already ‘largely’ funded in capital markets, while an identical proportion say their debt book comprises a mix of bank and capital markets funding but weighted towards the latter.
Available liquidity, credit spreads, investor demand for Australasian credit and total cost of funds are making bonds among the most attractive sources of funds for corporates at present. One-in-five (20%) corporate treasuries are active in the Euro markets. This is expected to increase over time, with 20% of respondents indicating they may engage with this market in the future. We note that Europe offers among the cheapest funding for Australian corporates at present.
More than 90% of survey respondents say they issue bonds or other debt securities at least once every 2-3 years, and nearly 60% say they are active on at least an annual basis.
The survey of 50 Australian corporate Chief Financial Officers and treasury decision-makers was undertaken in September and October 2014 with KangaNews as to their borrowing intentions for 2015. Responses came from a representative sample of the Australasian companies which access capital markets. The majority (60%) are BBB-rated with almost a third (31%) A-rated.
Click here to read the BNP Paribas Corporate Borrowers’ Intentions Survey for 2015