Corporate borrowers expect a more challenging 2016
Australasia’s largest corporates are expecting more challenging financing markets in 2016.
Just 9% of chief financial officers (CFOs) and corporate treasury managers expect credit spreads to be highly conducive next year, well down on the 56% who thought so positively last year.
Almost a quarter (23%) expect spreads to be either “fairly challenging” or “very challenging” in 2016, according to the annual Corporate Borrowers Intention outlook undertaken by BNP Paribas and Moody’s Investor Services. Where 90% of Australasian borrowers rated availability of liquidity as highly conducive in 2014, in this year’s survey the equivalent proportion fell to 38%.
Growing capital markets
Debt capital markets remain among the most attractive sources of funds for most corporates. More than half of respondents (52%) expect to increase their use of capital markets over the next year.
While firms are maintaining conservative debt targets they continue to focus on diversifying and lengthening the tenor of their funding. More than half the survey respondents say their company issues debt securities on an annual basis, while nearly 90% say they issue at least once every 2-3 years.
Issuers expect slightly fewer markets will offer optimal funding conditions next year – these being Australia, the US and Europe.
There are a number of reasons Europe is expected to return to favour for debt issued by Australasian corporates, including:
- The cost of landed debt (swapped into AUD) remains comparatively low,
- Unprecedented monetary easing from the European Central Bank, including negative interest rates, has helped restrain euro borrowing costs there, and
- The yield offered by Australian corporate issuers is very attractive to investors there and is in demand.
With the increased community focus on environmental issues, we expect green bond issuance to increase. Yet, while the survey found two-thirds of Australasian issuers are interested in green bonds, only a minority (2%) 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.
BNP Paribas, Kanga News and Moody’s Investor Service undertook a poll of Australian corporate CFOs and treasury managers in September 2015. The 50 responses came from a highly representative sample of capital-markets-relevant corporates in Australia and New Zealand.
Click here to read the Corporate Borrowers Intention 2016