MGR Mirvac Group

Australia's debt market sparked into life Wednesday with a succession of bond offers, including the first by a non-financial corporate since the middle of last year, illustrating the recovery in credit markets is continuing apace.

The rush to issue comes as investors seek to diversify away from a steady stream of debt from local banks and borrowers look to Australia's public debt market as an alternative to other financing routes.

The cheaper cost of converting Australian dollar borrowings into their home currency and a more expensive cost of converting foreign currency into local dollars is also at the core of the rush.

Although banks made up the most of the debt on offer Wednesday, the list of borrowers included offshore banks, which have been largely absent from the domestic market, along with non-financial companies.

Banco Santander, Credit Suisse, BNP Paribas and toll roads operator Transurban Group were all in talks with investors Wednesday to sell bonds, market participants said.

Property group Mirvac Group is also said to be close to a debt issue to replace a bond maturing next week, while Barclays Capital is considering a possible five year bond offer, priced at 130 basis points to 140 basis points over the underlying swap rate, market participants said.

John Manning, credit strategist at Royal Bank of Scotland, said a desire among investors to mix up their portfolios away form local banks, coupled with the cross currency basis swap making it more expensive to borrow offshore is key to the rush of issuance.

"There's a lot of money looking for a home," he said.

Banco Santander SA is considering an offer of three or five-year bonds, a market participant said, in what would be the banking group's first issue in the kangaroo bond market. Kangaroo bonds are sold by offshore issuers in Australia.

Price guidance on the three-year bonds is 120 basis points over the underlying swap rate, while the five-year discussions center around 165 basis points. Investment bank JPMorgan is arranging the discussions.

The bank set up its first Australian dollar debt program last year and has been linked to various possible acquisitions in Europe.

Last week, JPMorgan and HSBC broke the kangaroo bond drought by issuing in Australian dollars, the first outside of supranational issuers since 2007.

Also Wednesday, Credit Suisse's Sydney branch launched an offer of four year bonds, fixed and floating rate, with guidance of 120 basis points over swap.

Commonwealth Bank of Australia and Westpac are arranging the offer.

BNP Paribas is seeking to issue five-year-dated bonds, with guidance on the offer around 115 basis points over swap, a market participant said.

On the non bank-side, Transurban Group is considering an offer of four year dated debt securities, seeking to raise at least A$200 million, market participants said.

The company is speaking with investors about a possible issue priced around 170 to 180 basis points above the underlying swap rate, the market participants added.

The fully secured debt carries an extra layer of protection for buyers in the shape of a step up to a higher coupon in the event of a credit ratings downgrade for the company.

Public debt issuance in 2009 in Australia, excluding asset-backed securities, reached A$101 billion - but just A$3.6 billion of this was from non-bank companies. The last issue form a non-bank company was in the middle of 2009.

In the asset-backed sector, Bendigo and Adelaide Bank Ltd. is looking to sell around A$650 million in residential mortgage-backed securities. The pricing will be on or before March 17.

 
   -By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; enda.curran@dowjones.com 
 

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