More retail investors consider bonds

07-Mar-2017

By Leanne Abbas

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Retail investor interest in the Australian bond market was set to be more prevalent in 2017, despite the fact the market’s supply and demand issue had hindered the sector from reaching its full potential, according to law firm MinterEllison.

The firm suggested demand for infrastructure bonds and kangaroo bonds from international firms would rise this year, driven by an increase in issuances in the last quarter of 2016, when 37 bonds worth an estimated $15 billion were issued.

However, MinterEllison partner and bonds market commentator James Hutton told financialobserver regulatory hurdles were still getting in the way of corporate issuers offering debt to retail investors.

“You have to issue a prospectus and unlike in New Zealand now and in a number of countries overseas that have much more simplified ways to allow corporate issuers to offer their debt to retail investors, we’re still pretty much stuck in our regulatory environment where there’s cost and there’s director risks,” Hutton said.

“The regulators are obviously minded to protect consumers, but bondholders invariably rank ahead of equity holders, so I think there needs to be an even-headed telling of the story.”

He also identified an increase in demand for infrastructure bonds to be an emerging trend this year, which would drive interest from retail investors who had in the past invested in equity investments in listed infrastructure operators.

“With the prevailing low interest rate environment, retail investors and their advisers are looking to higher yields available on corporate debt compared to term deposits,” he said.

“Brownfield infrastructure bonds with lower risk producing income from existing assets and stability of cash flow are likely to be attractive to retail investors.”

Furthermore, he predicted a rise in the issuing of kangaroo bonds, as Apple launched its second kangaroo bond in June 2016, following its successful debut bond, which raised $2.25 billion.

“We anticipate the appetite by Australian investors for such bonds to rise in 2017 given investors’ desire to increase diversification whilst maintaining yield on their investments,” he added.

“There has been an emerging trend in recent years seen particularly in issuances especially in the last quarter of 2016 that have highlighted Australia’s ability to deliver meaningful corporate bond offerings to the global community.”

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