The Australian debt/capital markets remained active in the third calendar quarter of 2018, with borrowers continuing to seek more flexible financing solutions. Overall volumes have increased across all markets from the previous comparable period with the pipeline remaining robust for the remainder of the calendar year.
Borrowers continue to seek more flexible financing solutions including diversification of funding sources, stretched leverage requirements and extended tenors.
Within the domestic bank market, strong appetite remains for quality credits who will continue to enjoy competitive terms. However, as a result of the tighter regulatory and funding constraints being imposed on the banking market, we are increasingly seeing signs of banks being more sector selective and cautious in their credit decision making. This is providing opportunities for alternative financiers. Alternative funders currently make up circa two percent of the Australian debt market by volume. This is expected to increase significantly over time to market shares as evidenced in more mature markets such as Europe and the US.
Although bank costs of funds have increased under the new regulatory requirements (Basel III / IV), the local banks still remain competitive with respect to terms and pricing.
The pipeline of issuance for the local corporate bond market remains strong as investor diversity, volume and longer-dated tenors continues to develop. The market continues to be dominated by large rated companies in Australia and purchased by overseas or institutional investors as they seek to diversify their portfolios. Further, innovations in the Australian corporate bond market are enabling greater access for both issuers and investors.
The USPP market continues to display stable and favourable conditions for the Australian corporate issuers. The USPP market is expected remain a viable funding market for issuers looking to achieve tenor, diversification and volume certainty.
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