Year to date Kangaroo issuance

The supply of Kangaroo bonds (a type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency) was robust over 1H13, with issuance totalling $13.8bn (far in excess of the $11bn issued in the 1H12) mostly due to supranational, sovereign and agency (SSA) issuance. According to KangaNews the increased SSA Kangaroo bond issuance was met by a diverse investor base with increased demand from international investors searching for yield. KfW Bankengruppe (a German government-owned development bank) cited that borrowers’ activity is biased towards the mid part of the curve that remains appealing to offshore central banks and is also now attracting good interest from international balance sheet buyers (see Figure 1).

Figure 1

Australian dollar denominated assets remained attractive for international buyers notwithstanding recent cash rate cuts by the Reserve Bank of Australia. According to the International Monetary Fund survey of global reserve managers in May 2013, motivations for this key investor group to allocate to Australian dollar assets remain very much in place. The report revealed that the Australian currency stayed close to the top of the list of relocating targets as reserve managers seek additional diversification.

A substantial reduction in SSA Kangaroo issuance volume in 1H13 from US and European banks was recouped by orders from Asian credits and non-bank financial institutions. Japan and China entered the Australian market with A$2.35bn year to date versus A$1.5bn and $1.25bn in 2012 and 2011 respectively (see Figure 2).

Figure 2

On the non-SSA Kangaroo issuance front, A$3.8bn Kangaroo bonds were launched year to date compared to A$5.3bn executed in 2012 (see Figure 3). 1H13 saw a record issuance of domestic Australian dollar deals from local branches of Asian banks followed by the significant issuance by Hundai (Hundai Capital Services) and Korea Finance Corporation each accounting for A$250m of deals. The Hyundai dual tranche deal was the first international transaction 1H13 into the Australian market from an Asian credit borrower and from an international non-financial corporate. By the end of April 2013 there were only three non-SSA Kangaroo deals launched by international financial institutions with a total volume of A$1.7bn: Wells Fargo and Company (Wells Fargo) with a large issuance of A$900m, Citigroup with A$500m in January and a debut of A$300m from National Bank of Abu Dhabi in February. Four corporate Kangaroo deals were issued in May 2013 accounting for A$2.2bn. Wells Fargo, J.P. Morgan Chase & Co, Bank of America Corporation (BoA) each issued Kangaroo bonds in the 1H13 with A$150m, A$950m, A$850m volumes respectively. Hyundai followed with a A$250m transaction.

Figure 3