… as ASX offers finance to rating agencies for retail bonds

Ken Chapman
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(Pictured: Ken Chapman)

by Penny Pryor

The Australian Stock Exchange (ASX) is offering to help ratings providers finance research on retail corporate bonds.

It has issued a request for a proposal through which it will help finance the ratings of retail bonds once the Simple Corporate Bonds and Other Measures Bill legislation, currently before parliament, is passed and allows the retail corporate debt market to open up.

The Bill is due for its second reading and is expected to be passed during the winter sitting session in July, with regulation to follow relatively quickly after.

“Last week we actually put out a request for a proposal whereby ASX would help finance [research] for debt securities,” ASX head of debt capital markets, Ken Chapman, said at an S&P/ASX fixed income seminar on the retail corporate bond market last week.

“Where ASX will help finance the development of ratings [is] for all ASX listed debt securities.”

Research and ratings on corporate retail issuance will become particularly important after the legislation is passed as the major agencies – S&P and Moody’s – pulled out of the market following the new credit rating accreditation process introduced by the Australian Securities and Investments Commission (ASIC) in 2011.

The only credit agency that still covers the retail debt market in Australia is Australia Ratings.

Financial advisors will be reluctant to advise clients on investing in any kind of corporate bond if it is not first rated or researched. Most investments need to have some kind of research behind them to be included on a dealer group’s recommended product list.

Therefore research on any new retail bond issuance will be essential if the introduction of the Simple Corporate Bonds and Other Measures Bill is to result in the creation of an active retail corporate bond market in Australia.

For the companies looking to issue the debt, the Bill, should certainly make life easier.

Shannon Finch, head of business, King & Wood Mallesons, is a lawyer who operates in corporate markets and mergers and acquisitions.

She says that previously companies have had to issue prospectus that are similar in length and detail to what they would have to issue for an initial public offering. That’s partly because of the liability that falls on directors when they want to issue corporate bonds. The new regulation relaxes that.

“This is the biggest reform we’ve had to directors liability in the 20 years I’ve been practicing. This is the first time I’ve seen it reduced,” she said at the S&P/ASX seminar.

But she also called for the industry to get behind the legislation and become more involved via industry feedback on the regulations once the Bill is passed.

“What we do need is for the industry to get behind it,” she said.

“It is really significant but it does require people to get behind it and support it.”

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