insto - Australian financial markets

If there was any doubt that 2009 was the year that the domestic bond market had got its groove back, it was well and truly erased in the third quarter, reports Jonathan Shapiro.

Conditions continued to improve, increasing the confidence of both issuers and investors.

From July to September, over A$30 billion of non-government bonds were printed, making it the busiest period of the year, exceeding Q2 total issuance by A$10 million and more than double the amount issued in the third quarter of 2008.

 Traders and investors in the Northern Hemisphere returned from their summer breaks to start a new month and promptly offloaded financial stocks.

US equities indices slid sharply, driven by a sell-off in banking shares. The S&P500 lost 2.2 per cent to close at 998.4 below the 1,000 mark for the first time since 19 August. The session is also the first time stocks have fallen for three consecutive days since June.

Westfield wasted no time in tapping the US bond markets after releasing its results earlier in the day(see below). The property trust raised US$2bn in 6yr (US$750m, UST+350) and 10yr (US$1.25bn, UST+350) bonds in the 144a market. Initial price guidance was UST+375 for both tranches.

The pricing is significantly tighter than Westfield's US$700m 5yr deal printed in May, which priced at margin of UST+548.9.

US stocks edged up on light trading as investors absorbed mixed economic data. The S&P500 index gained a fraction, up 0.01 per cent. to 1,028.12

The number of club loans written at the start of the year dropped away sharply as liquidity became a real issue. Activity is now returning, with Asian-backed forward start facilities gaining popularity.

Syndicated bank loans were seen as the financial lifeline for starving corporates a year ago, before fading in Q4 of 2008 and the first quarter this year. Big four advisory firm KPMG, reviewing the corporate finance landscape over the past 12 months, confirms that there was a sharp decline in syndicated loan volumes, starting in the second half of calendar year 2008 and continuing into 2009.

Thomson Reuters came to much the same conclusion, noting: “Only five loan facilities reached general syndication close in Australia in the opening quarter of 2009. First quarter volume totaled only US$3.3 billion compared to US$16.5 billion in the first quarter of 2008.”

Markets sold off overnight as nervous investors braced for a pullback.

Financial stocks led US stock indices lower overnight. The S&P500 shed 1.3 per cent to 994 while the Dow shed 1 per cent with Bank of America, JPMorgan and GE among the biggest decliners.

Westfield’s deputy CFO, Domenic Panaccio, tells Bernard Kellerman that his firm success stems from its single focus business and a commitment to keeping his investors informed.

Do you see yourself as operating in the A-REIT space?

Naturally we’re put into that bucket, but when we think about how the market has changed, ultimately you are competing for equity and debt capital, and across sectors. If I look back a few years ago there would have been more property investors in our register. Now we’re getting a bigger percentage of general equity investors. When we do compete for capital it’s against every other company that’s looking for capital and we need to differentiate ourselves in terms of what we can offer those investors.

 
The challenges facing the growth of a domestic corporate bond market have not disappeared, despite a few promising signs.

The stars appear to be aligning for the Australian corporate bond market but so far most discussion has been in abstract terms, or in reaction to a few names that have gone early.

The reality is that there are also a number of factors that have historically worked against the domestic bond market and will continue to work against it.

US stocks broke a four day losing streak as consumer confidence data surprised on the upside. The S&P500 gained 2.63 per cent; the index is now up 0.8 per cent for the year.

US Treasury yields were up as stocks rallied. The Libor rate moved slightly higher the first time it has increased in 38 days.

Despite better consumer confidence data, housing stats were dismal. The Case/Shiller home price index posted a 19.1 per cent annual drop, and its biggest quarterly decline in 21 years.

Westfield issued US$700 million into the US 144a corporate bond market last week.  Details are as follows:

Issuer: Westfield Group (WEA Finance LLC and WCI Finance LLC)
Sector: AREIT (Property Trust)
Issuer rating: A-/A2/A-
Facility: US$ fixed rate 144a/Reg S Senior notes
Amount: US$700 million
Launch: 26 May 2009
Maturity: 2 June 2014
Set date: 2 June 2009
Coupon: 7.50 per cent
Spread: 548.9 basis points over US Treasury, equivalent to about 490 basis points over USD Libor
Lead(s): Barclays, JPMorgan, Morgan Stanley

The bond deal was launched at US$500m and was more than twice oversubscribed.