ANALYSIS: Companies want it to be easier to raise capital by issuing debt to retail investors, but the Virgin bonds saga is still fresh in the minds of some critics.
In the near-decade since the Coalition government introduced reforms aimed at opening up the corporate bond market to regular, retail investors, just five companies have taken advantage of the new regime.
“The current SCB regime has not had any impact on the issuance of corporate bonds, and accordingly, reform is needed,” said the Australian Securities Exchange’s government relations chief, Grant Lovett, in aPaul Heath, chief executive of Koda Capital and former boss of National Australia Bank’s JBWere private wealth business, agrees there is a strong case for winding back some of the paperwork and other regulatory requirements blocking retail investors from accessing corporate bonds.
Even if the government did reform the sector to strip out some of the costs inherent in the bond issuance process, a retail offer would still involve extensive marketing, additional legal work and conversations with hundreds or thousands of separate independent financial planning and stockbroking firms out in the suburbs.In some cases, it might be because institutional investors have already turned them down. “That’s what happened with Virgin,” Heath says.
“It is incumbent on the rest of the industry to ensure mum and dad investors are not sold the stuff instos don’t want,” he says.University of Sydney finance associate professor Shumi Akhtar concurs there is a “possibility” that retail investors would be targeted in offers for sub-scale or low-quality issuance. “Hence, a proper set of rules and regulations must be established first before anyone trying to design our corporate bond market in Australia,” she says.
“For lesser-rated entities it has just been easier to get a bank loan,” Love says. “Everyone looks to the bigger names, but ... those players already have very well established [capital-raising] programs, especially in the [US]. More broadly, investors around the world invested $US185 billion in fixed income ETFs in the year to December alone.