Australian companies and Australian investors deserve urgent action to fix the broken corporate bond market. It is no longer good enough to keep kicking the can down the road for someone else to mend.
There is a clear desire by Australian companies to issue corporate bonds and there is a clear demand for investors for these bonds. All that is required is a willingness and desire by the government to make it happen.
While it costs Australian companies an estimated $500,000 to produce a prospectus and issue bonds, there is not going to be a viable retail market. We need to cut through the red tape and follow New Zealand’s lead in allowing companies to launch corporate bonds without a prospectus. Why would an ASX top 200 company that already adheres to direct disclosure requirements need to produce another extensive document?
Under the current simple bond process launched back in 2014, records show that just five corporate bonds have been issued, clearly failing debt issuers and investors. A simpler process would enable Australian companies to issue to retail investors in their domestic market, giving them another funding source, while providing more options for income seeking investors.
Also read: Bond ETF Flows Show Brighter Days Ahead
This week, Financial Services minister, Stephen Jones acknowledged Australia’s corporate bond market lacks depth amid mounting calls for the government to remove paperwork. This follows on from MP Jason Falinski’s work, and the corporate bond market enquiry back in 2021. At the time we interviewed Falinski, and he commented:
“Simply, we need to do what New Zealand is doing. Their system has worked incredibly well. It would be beneficial to Australian corporates, investors and our economy more broadly.”
Listen to the podcast published July 2021: PODCAST: Corporate Bond Market Inquiry with Jason Falinski MP – Chair of Standing Committee on Tax and Revenue
Retail investors also need access to Credit Ratings
While the process to issue corporate bonds will hopefully change, we would also urge the government to consider dropping the fee for credit ratings agencies to show credit ratings to retail investors and put all investors on a level playing field.
Credit ratings should never be the only factor when assessing an investment, but they can help guide, particularly when a company has a strong brand name but a relatively weaker financial position.
At Fixed Income News Australia, we are advocates for the asset class, portfolio diversification and giving investors a level playing field, we urge the government to take responsibility and improve the processes.
