Half of Australian corporate treasuries expect yields to increase in the second half of next year and 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. These are the highlights of the BNP Paribas' corporate borrower's intention survey for 2015 which polled 50 chief financial officers, treasurers and other senior treasury decision makers in Australia on their borrowing intentions next year.
"Three-out-of-five (60%) Australian corporates do not expect credit spreads to start rising before the second half of 2015," notes Didier Mahout, CEO Australia and New Zealand at BNP Paribas. "Issuers have a somewhat different view on rates trajectory, with more than 90% of Australian corporate borrowers predicting yields will increase at some point in 2015."
Other highlights:
* 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
* 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.
Diversifying funding sources
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.
"Exactly one-third of respondents said they expected to increase their proportional use of capital markets funding in the foreseeable future," says Mahout.
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.
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. Two-thirds (67%) of corporates tend to fund their debt financing from a mixture of debt capital markets and bank debt.
Mahout suggests Australian corporates should take the opportunity to review their financing and take advantage of the current low financing rates, particularly in longer tenors - and not get caught out by any sudden rise in interest rates here or overseas.
