Companies are looking to overseas bond markets to raise funds.
New Zealand businesses are turning to international investors to borrow money, resulting in fewer offerings for local institutional investors.
Corporate bond issuance in the domestic market has slowed dramatically as companies increasingly look overseas, where they are able to borrow at lower interest rates and for longer terms.
Local issuance in the year to date comes to about $4 billion, while debt raised in other countries is close to $14b over the same period, according to data compiled by Harbour Asset Management.
Last year, the total investment-grade senior debt issued by corporates, financial institutions and government agencies domestically came to about $10.1b.
Harbour senior credit analyst Simon Pannett said bond issuance in general has been modest this year.
That’s partly down to banks being better positioned, so corporate treasurers are skewing their funding mix more towards bank lending, he says.
The New Zealand Local Government Funding Agency (LGFA), which raises funds for councils, has recently begun issuing offshore debt, which has added another “swing factor” away from the local market, he says.
“But it’s not just LGFA. There is a kind of dynamic where treasurers are getting better pricing landed back into Kiwi dollars if they issue offshore,” he said.
“That’s something we would see as being likely to persist, so it’s a bit of a change.”
Kāinga Ora (formerly the Housing Corporation) is absent from the corporate debt market after the Government in 2022 announced that future funding would be through New Zealand Debt Management – part of the Treasury.
He said corporates are hedging funds raised overseas back into New Zealand dollars on quite favourable terms.
“In previous years, typically there is more issuance done domestically than offshore, but this year, a multiple of what’s been done onshore has been done offshore.
“Borrowers probably see it as being reasonably positive, but from a fund manager’s perspective, we would like to see more issuance in New Zealand,” Pannett said.
“Typically they will get a bit more tenor [longer duration] offshore, and price is a pretty significant motivator also.”
But Pannett said it’s too early to say if the local market risked becoming a backwater for corporate bond issuance.
“I would need to see a bit more evidence of that first, because it may just be that pricing has moved so much that that is where we are at this point.
“But to call it a real trend, you might need some more evidence.”
Overseas bond issuance has been split between Australian, US, Swiss and European markets, with smaller deals done in Japan.
Pannett said the trend of raising funds in overseas markets was “strikingly different” from previous years, when domestic issuance came out on top.
The trend means more fund managers, including those managing KiwiSaver funds, are looking overseas for opportunities.
“It’s fair to say that they [fund managers] have been looking offshore to fill the void left by limited domestic corporate bond issuance,” Pannett said.
Simon Eckhoff, director for syndicate and debt capital markets at ANZ Markets, Institutional, said hedging costs have been favourable throughout this year, which has resulted in New Zealand issuers tapping overseas markets.
For corporate issuers in the year to date, ANZ estimates that for every $1 raised in New Zealand dollars, there has been the equivalent of $2 raised in overseas markets – in sharp contrast with history.
“There have been several factors touted as key drivers for the current dynamics, such as the comparative value of the likes of New Zealand government bonds to that of corporate bonds as well as prevailing hedging levels.
“These factors could be perceived as effectively shrinking the investible universe in New Zealand dollar debt,” Eckhoff said.
“While the New Zealand debt market has faced some challenges recently, markets typically normalise,” he said.
“In the interim, offshore debt offers New Zealand issuers an opportunity to enhance their funding diversification,” Eckhoff said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.