Investors from Asia are increasingly looking to Australian infrastructure debt to source favourable risk-adjusted returns in a yield-scarce environment, said National Australia Bank in a report.
As more Asian investors contend with mounting domestic obligations and low yields on traditional assets, investor profiles and risk appetites are changing, with the likes of insurers and even retail investors becoming more active in the debt investment space, notes NAB.
“The insurance companies want something longer-dated but higher up the risk curve; their preference is for 10-year minimum transactions with a fixed rate and an explicit rating,” said Christy Tan, NAB’s head of markets strategy and research in Asia.
Issuances by infrastructure sponsors have become attractive to these investors as the debt is generally longer-dated, with tenors of more than 10 years. That matches insurers’ long-dated liabilities and provides investors with an attractive return for what are high-quality assets, Lorna Greene, NAB’s director of debt syndicate and origination in Asia, told Infrastructure Investor.
These issuances are highly sought after by Asian investors, Greene said, quoting a recent survey by the bank that polled Asian clients on their debt appetite. More than half of participants would like to see more issuers from infrastructure sponsors, NAB noted.
While Asian investors are becoming more prominent as bookrunners of Australian dollar-denominated bond issuances – from 10-15 percent of the volume issued a few years ago to 35 percent nowadays – heightened market appetite is resulting in tighter funding costs for issuers, said Greene.
NAB also highlighted Asian appetite for US debt. RegS bonds – securities denominated in US dollar but not available for sale to US onshore investors – are generally backed by European and Asian institutions, with the latter group accounting for up to 80 percent of the purchase spree.
Greene said about 60 percent of Asian investors in infrastructure debt come from China and Hong Kong, with the balance equally split between Japan and Taiwan. She also added that China’s capital controls have not had a significant impact on Chinese institutions’ willingness to invest in overseas markets, including Australia.