By Cecile Lefort
SYDNEY, Sept 4 (Reuters) - A bond offer by Australian conglomerate Wesfarmers Ltd that priced on Friday drew demand for twice the issue size, signalling a renewed vigour in the Australian corporate bond market after years of stagnation.
Orders for the A$500 million ($420 million) issue topped A$1 billion as investors sought a piece of the largest bond from a top Australian non-financial firm since 2006, as a change to their recent diet of relatively low yielding, government guaranteed bank bonds.
'The market has been screaming out for non-financial deals for a long time,' said Stuart Gray, portfolio manager at Aberdeen Asset Management.
Just 3 percent of this year's A$70 billion domestic bond issuance has come from non-financial firms, according to consultancy firm ADCM Services, mostly because of high borrowing costs.
Moreover, large Australian firms often prefer to raise debt in bigger and more liquid offshore markets, where they can issue bigger volumes and longer maturities than at home.
Until Wesfarmers' offer, only six non-financial companies had braved the Australian market this year, raising a modest A$1.7 billion in total.
Analysts expect the issue to pave the way for others to follow into a market where corporate bond issues have traditionally been rare.
Supermarket chain Woolworths Ltd, a rival to Wesfarmer's Coles chain, is expected to be next in line,
'The (Wesfarmers' oversubscription) shows that Woolworths would and should be able to do a 10-year bond offer,' said Aberdeen's Gray.
Woolworths will meet with investors next week. Although the presentations are officially not deal-related, fund managers anticipate a bond offer shortly after.
The attraction of the Wesfarmers bond was that it came from a company with good quality stable cash flows, offering a good option for investors who have not much room left for more bank bonds in their portfolios but still need a home for their cash.
'With Wesfarmers' equity raisings, the company is now in nice and clean shape with low gearing and good interest ratio again,' Gray said.
However, some Australian investors voiced concern about the offer's documentation, which they saw as putting them in a weaker position than Wesfarmers' banks should there be any adverse events.
'We've certainly reviewed the deal and it's disappointing that the legal structure is so weak and that Wesfarmers chose not to respond to investors' concerns,' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management, Australia's largest bond fund manager.
Wesfarmers is rated BBB-plus by S&P and Baa1 by Moody's. See for the terms of its offer.
(Editing by Jonathan Standing)
((cecile.lefort@reuters.com; +612-9373-1234; Reuters Messaging: cecile.lefort.reuters.com@reuters.net)) ($1=1.191 Australian Dollar) Keywords: WESFARMERS/BONDS (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
SYDNEY, Sept 4 (Reuters) - A bond offer by Australian conglomerate Wesfarmers Ltd that priced on Friday drew demand for twice the issue size, signalling a renewed vigour in the Australian corporate bond market after years of stagnation.
Orders for the A$500 million ($420 million) issue topped A$1 billion as investors sought a piece of the largest bond from a top Australian non-financial firm since 2006, as a change to their recent diet of relatively low yielding, government guaranteed bank bonds.
'The market has been screaming out for non-financial deals for a long time,' said Stuart Gray, portfolio manager at Aberdeen Asset Management.
Just 3 percent of this year's A$70 billion domestic bond issuance has come from non-financial firms, according to consultancy firm ADCM Services, mostly because of high borrowing costs.
Moreover, large Australian firms often prefer to raise debt in bigger and more liquid offshore markets, where they can issue bigger volumes and longer maturities than at home.
Until Wesfarmers' offer, only six non-financial companies had braved the Australian market this year, raising a modest A$1.7 billion in total.
Analysts expect the issue to pave the way for others to follow into a market where corporate bond issues have traditionally been rare.
Supermarket chain Woolworths Ltd, a rival to Wesfarmer's Coles chain, is expected to be next in line,
'The (Wesfarmers' oversubscription) shows that Woolworths would and should be able to do a 10-year bond offer,' said Aberdeen's Gray.
Woolworths will meet with investors next week. Although the presentations are officially not deal-related, fund managers anticipate a bond offer shortly after.
The attraction of the Wesfarmers bond was that it came from a company with good quality stable cash flows, offering a good option for investors who have not much room left for more bank bonds in their portfolios but still need a home for their cash.
'With Wesfarmers' equity raisings, the company is now in nice and clean shape with low gearing and good interest ratio again,' Gray said.
However, some Australian investors voiced concern about the offer's documentation, which they saw as putting them in a weaker position than Wesfarmers' banks should there be any adverse events.
'We've certainly reviewed the deal and it's disappointing that the legal structure is so weak and that Wesfarmers chose not to respond to investors' concerns,' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management, Australia's largest bond fund manager.
Wesfarmers is rated BBB-plus by S&P and Baa1 by Moody's. See for the terms of its offer.
(Editing by Jonathan Standing)
((cecile.lefort@reuters.com; +612-9373-1234; Reuters Messaging: cecile.lefort.reuters.com@reuters.net)) ($1=1.191 Australian Dollar) Keywords: WESFARMERS/BONDS (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.