LISTEN: solid outlook for borrowers

Ongoing low volume in the corporate loan market means conditions remain positive for borrowers looking to secure longer-dated funding in 2024, according to Gavin Chappell, Head of Loan Syndications at ANZ Institutional.

Speaking to On Air with ANZ Institutional ahead of the 2024 ANZ Debt Conference, Chappell said conditions led to a significant fall in loan volumes in 2023, driven by rates uncertainty and a reduction in merger and acquisition (M&A) activity.

That created a market where borrowers were interested in securing “some of that longer-dated funding - just because there wasn't the number of deals that people probably expected during the year”, Chappell said.

“That theme has kind of continued into [2024],” he said. “Meaning this year is also looking [at] a really, really strong outlook for borrowers that want to come to the market.

“[It’s been a] really strong start to the year in terms of trying to tap some of that Asian liquidity for borrowers down here in Australia, and also tapping some of that longer-dated funding.”

Chappell made the comments in conversation with Gwen Greenberg, Head of DCM Australia at ANZ Institutional. You can listen to an edited version of the conversation below.

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The significant driver of appetite for longer tenor was the reduction in M&A, Chappell said.  

“M&A last year globally was down quite significantly,” he said. “In Australia it was down well and truly over 50 per cent.”

Interest rates were a factor in that decline, Chappell said, with the cost of capital uncertain for many businesses.

“I think that really slowed the M&A pace down,” he said. “But what that reduction in volume meant was banks and other investors were really, really keen to invest in credit.”

On the bond side of the market, Greenberg said activity in 2024 had gone “from strength to strength”, particularly in the Australian medium-term note market (AMTNM). Credit spreads on the market began to narrow in the fourth quarter of 2023 - a sign of market health - and that had continued in 2024, she said.

“[Spreads have] continued to grind in and we've had record issuance across the majority of debt capital markets this year” Greenberg said.

And that AMTNM strength – the market is already up 50 per cent this year – is expected to continue, she said.

“Corporates, you know, will be a little bit slower to come off the mark because of [earnings-season] blackouts,” Greenberg said. “But we are looking at quite a healthy pipeline.”

Chappell said there was general sense of positivity in the market so far in 2024, although it varied from sector to sector, and borrower to borrower. Indeed, price variation has been quite wide, he noted.

“I'm probably seeing now the greatest differentiation in price by borrowers, that would be largely equivalently rated, than I've ever seen,” he said. “Just by what sector they're in [and] what the transaction actually is.”

Some sectors are finding pricing “a little bit more challenging” in terms of pricing when it comes to funding, Chappell said, particularly in sectors that currently lack liquidity, like institutional property.

“Those kinds of borrowers are going to need to pay a little bit more to get their transaction done,” he said.

Greenberg said returning confidence in the market in the post-COVID era meant businesses were beginning to address their capital expenditure positions.

“Capex was almost on hold for the last couple of years,” she said, noting markets were “only really starting to see [capex] refinancing at the back end of last year or even this year”.

Many businesses chose to place their capex “on maintenance” in the wake of the pandemic, Greenberg said.

“Now we're well through the COVID period,” she said. “And it does seem that capex refinancing is coming back on.”

The experts also spoke about the health of the sustainable finance market, and their excitement ahead of the 2024 ANZ Debt Conference. Listen to the podcast above to find out more.

This note reflects the edited version of the conversation as it appears on the podcast.