Aussie market finds new depth

Reuters

* RBC Sydney prints record A$1.5bn bond

* Deal comes right after record corporate bond by Aurizon

* Market becoming viable funding avenue

By John Weavers

SYDNEY, Oct 25 (IFR) - Royal Bank of Canada, Sydney branch,turned heads on October 22 with a record-breaking local debutthat showed the Australian dollar market might be deeper thanmany had thought.

The A$1.5bn (US$1.448bn) three-year floating-rate note isthe biggest senior unsecured deal to date from any bank otherthan the country's four major lenders.

The previous chart topper was Bank of Queensland's A$1.25bnfour-year floater at the end of 2009, which enjoyed the benefitof a Commonwealth Government guarantee.

RBC's ground-breaking deal came only days after AurizonNetwork rewrote the local corporate record books with itsinaugural offering on October 18.

Aurizon's A$525m 5.75% seven-year bond is the largest TripleB rated local corporate issue, as well as the country's biggestseven-year corporate paper.

"The bank was pleased by both the scale and breadth ofdemand that enabled it to price this transaction in line withits US dollar curve," said Enrico Massi, head of debt capitalmarkets Asia Pacific at RBC Capital Markets.

The elevated demand for these two vastly different offeringshappened even as Australian dollar issuance has topped A$105bnyear to date, almost A$20bn more than the amount sold in thesame period in 2012.

The RBC deal suggests that the Australian market is now ableto absorb foreign bank paper in size and further establishes thecountry as a viable funding avenue for global financialinstitutions.

MORE BUT NOT FOR ALL

Paul White, global head of syndicate at ANZ, said theAustralian dollar market continues to become deeper,particularly for corporates that can issue larger volume andlonger duration.

However, the success and size of individual issues stilldepended on the criteria of the issuer, said Peter Dalton, headof syndicate at Westpac Institutional Bank.

"RBC is a top-notch bank that enjoys scarcity value inAustralian dollars," Dalton said. "Furthermore, its localpresence means it is well known to domestic investors, while thenew bond's repo eligibility helped secure a very strongbalance-sheet bid."

RBC Sydney, rated Aa3/AA-/AA, launched its October 2016notes at a minimum indicative size of A$500m, but an order bookin excess of A$1.8bn meant a far larger offering was on thetable.

Repo eligibility played a key role in that strong demand aslocal banks bought 61% of the bonds.

Not all international banks enjoy a local facility,including another potential Canadian issuer, Toronto Dominion,which has closed its Australian branch, meaning its notes wouldnot be repo-eligible.

RBC's notes priced in line with guidance of three-month BBSWplus 65bp, which is about 5bp above where Australia's similarlyrated major banks at Aa2/AA-/AA- could price a new three-yearfloater, according to domestic syndication desks.

They also priced close to RBC's US dollar curve where theytrade around 5bp inside the Aussie majors. That ability to getsimilar funding costs from a different investor base couldattract other banks.

RBC is not the only Canadian financial to have tapped theAustralian dollar market this month. On October 18, CanadianImperial Bank of Commerce raised A$500m from its first coveredKangaroo bond in over three years - another three-year floaterthat priced to yield 52bp over BBSW.

Bank of Nova Scotia is the only other Canadian bank to haveissued covered bonds in Australian dollars, having put out in2011 a single A$1bn fixed-rate 5.75% three-year paper, maturingon January 28 next year.

The success of RBC's two recent offerings can only encourageBNS to return to the Aussie dollar market to refinance its2014s.

In fact, as it gains size, Australia's local market is fastbecoming a stop in global funding forays by global banks.

"The attraction of the Australian dollar market for anissuer like RBC is that the investor base is new, diverse andincludes both domestic and international buyers," Massi said.

"These investors have good demand for high-qualityinternational banks, including those from Canada, which, likeAustralia, came through the global financial crisis relativelywell."

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