Wesfarmers and Telstra are among a growing number of Australian companies looking to remove the red tape involved in selling corporate bonds directly to mum and pop investors.
Such everyday investors are key to drawing in new sources of capital, as uncertain global markets make raising money overseas a costly proposition, with currency fluctuations and inflationary concerns.
Meanwhile, the average yields on corporate bonds issued by “highly-rated” companies has jumped from under 2 per cent in 2021 to 5 per cent, making such assets an attractive prospect for so-called ‘retail investors’.
Yet, as it stands, these local retail bonds are largely unavailable to regular Australian investors, due to what the AFR calls ” perceived tax and regulatory impediments.”
Former Liberal MP Jason Falinski chaired a government-led inquiry in 2021 which looked at how Australian tax laws and the Corporations Act were stymieing the development of a local bonds market.
In an editorial for the AFR in 2020, Falinski ranted against the “market failure” of restricting the local bond market, asking whether “the absence of an active corporate bond market in Australia limited our economic development?” compared to other nations.
“Australia now has the third largest pool of savings in the world, but if investment managers want to invest in Australian corporate bonds, they must go overseas,” he wrote.
“Not only is this more expensive for Australian investors and businesses, not only does it reduce competition for capital, remove a form of debt that can meet specific business and investor needs, but the lack of an Australian bond market has reduced our nation’s capacity to be a world leader in financial markets.”
The review by the House of Representatives Standing Committee on Tax and Revenue found less than 1 per cent of he corporate bond market was held by personal investors, compared to the US, where personal investors hold 20 per cent of the country’s corporate bonds.
Australia was also found to lag behind Europe and New Zealand in this regard.
Wesfarmers head of group finance, Tricia Ho-Hudson, said the company would love a “broad base of supportive investors”. She is a member of an industry working group looking to cut the aforementioned red tape.
“An attractive opportunity for Wesfarmers, and for other well-rated corporates like us is to be able to access our home-grown market in Australia at any point,” she said.
“If we felt that this was properly open to us, it would be one of the options that we would consider, particularly because we value diversity in our investor base.”
Telstra treasurer Guy Wylie would love a return to the day were Telecom was one of the country’s biggest issuers of bonds.
“We would love to be an issuer in the market if the price made sense, but we will need a bit of simplicity to do that,” he explained.
“For us, it would be great to give retail investors a little more choice, but for the big corporates to do that we need to reduce the complex hoops to be able to issue.
“From a documentation and regulatory point of view, the additional complexity and risk process has made it unattractive compared to offshore markets.
“However, given the recent interest rate increases and market volatility, we think over the next 12 to 24 months it should be an attractive product for retail investors.”
A Wesfarmers bond that matures in June 2028 now yields 5.5 per cent, compared to the 1.5 per cent it could be bought for in June 2021.
A Telstra bond that matures in April 2027 will yield over 5 per cent, compared to the less than 2 per cent it traded for in April 2022.
