Corporates, just like individuals, would rather pay off debt than take on any more these days, which has created a dilemma for lenders and investors alike.
On the debt side of the equation, the banks are keen enough to lend, and there are plenty of investors looking for yield, but so far corporates are just not playing the game. As markets and investors ponder life in a post-Global Financial Crisis world, insiders detect a mildly positive mood emerging, aside from the economic clouds that still linger over Europe.
"I think the mood is becoming a little bit more positive," says David McLean, chief executive of Westpac Institutional Bank. "Investors are moving a little bit away from risk aversion.
"We have had a low-return environment for several years now and investors are starting to look for more of a return from their portfolios."
He says there is an air of optimism about the Government's mixed ownership model, but the market is disappointed it has taken so long to set in train.
Though Mighty River Power is expected to surface in the third quarter, the market is in the dark as to what happens after that.
"Once it gets going, I think it will rekindle some interest," McLean says.
But Mighty River will be a theme for the equities market, not the debt market.
McLean says corporates are still reluctant to raise funds from the debt market, despite a surfeit of investor interest. "Anecdotally, corporate customers are starting to look at doing something, but not quite yet. We think think the de-leveraging story is coming to an end but there is some way to go.
"In the debt markets, we are seeing more investor appetite than there is corporate demand for funds," he says.
To illustrate the level of investor demand, McLean points to Westpac's recent $750m bond issue, which was snapped up in a very short space of time.
He says corporate bond issuance will only pick up if corporate investment activity improves. "When they decide to move, the capital markets will be ready for them."
David Gibson, managing director and co-head of corporate finance at Deutsche Bank NZ, says markets have still not fully recovered from the blow dealt to them by the Global Financial Crisis. "And that I think that capital market flows have reflected that."
While the market has seen more activity on the equity raising side, debt raising activity has been quiet. "Corporates are in good shape and they have been able to access bank debt relatively cheaply, so there have not bee a large number of corporate retail bond issues over the last year," Gibson says.
There is no shortage of demand for New Zealand paper. At the top of the quality pyramid, the Government's bond tender programme continues to attract very strong support.
Offshore, there is a move away from bank-issued debt - because of the troubles the banking industry went through during the Global Financial Crisis- in favour of debt issued by utilities. State-owned power grid operator Transpower successfully raised CAD$250 million ($315 million) through a five-year, 3 per cent coupon, bond issue last month to Canadian institutional investors.
Howard Cattamole, chief financial officer at Transpower, says the international investors were keen to get non-financial corporates in their portfolio - particularly easily understood businesses such as transmission utilities.
Transpower has a significant borrowing programme for the year and is expected to be an active issuer.
A raft of New Zealand corporates, including Transpower, have been tapping into the US private placement (USPP) market in recent years because it is a market that can offer cheaper interest rates, spread over longer terms. The USPP market is made up mainly of the big insurance companies on the lending side, and utility style companies on the borrowing side.
The attraction for insurers is that they can pick up interest rates well in excess of what can be achieved from their US treasury equivalents - particularly at the moment while the US Federal Reserve adopts a low interest rate policy to try and stimulate growth.
Over the past 10 years, there have been 12 issuers into the USPP market from NZ, completing 21 transactions. An alliance between Bank of America Merrill Lynch and Westpac has been active in this market for New Zealand corporates. Altogether, the alliance has priced US$1.69 billion from New Zealand issuers.