Financial Markets Activity
Corporate Objective – Maintain ready access to domestic and international capital markets to ensure funds are raised to finance client borrowing needs at the lowest possible cost.
Critical to WATC’s ability to complete its borrowing program requirements, and delivering competitive pricing for clients, is having ready access to capital markets. In achieving this, financial market activities during 2016/17 centred on:
issuing across the yield curve in fixed and term floating rate formats to fund lending to clients
establishing two new benchmark bond lines maturing in 2024 and 2026
maintaining sufficient volumes on issue and enhancing the liquidity in existing lines of benchmark bonds maturing in 2018, 2019, 2020, 2021, 2022, 2023, 2025 and 2027
refinancing the maturing March 2017 Floating Rate Note (FRN) and upcoming 15 July 2017 benchmark bond line
establishing two new FRNs maturing March 2020 and March 2022
examining opportunities to issue through the Euro Medium Term Note (EMTN) Program and other offshore markets to generate term fixed and floating rate funding
issuing short-term paper through domestic inscribed stock and the Euro Commercial Paper (ECP) Program for liquidity funding
transacting in derivative products to meet WATC’s asset and liability management requirements and to generate floating rate funding for clients
continuing marketing efforts in order to broaden and diversify the investor base.
WATC utilised four of its five funding facilities during 2016/17 to complete the borrowing program. Funding for liquidity and short-term requirements was met through the domestic short-term and offshore ECP programs. The primary source of WATC’s long-term borrowings was the domestic benchmark bond program, accounting for approximately 80 per cent of total term borrowings. Term floating rate funding was generated through both FRN issuance and the swapping of fixed rate benchmark bond issuance. At 30 June 2017, FRNs accounted for 20 per cent of total term borrowings.
During 2016/17, WATC partnered with a number of Market Making Panel members to present to domestic and offshore institutional investors on the Western Australian economy, WATC’s borrowing program and associated market activities. In addition, WATC arranged pre-budget presentations by the Treasurer of Western Australia to domestic and offshore investors. It is estimated that offshore investors hold approximately 20–25% of WATC term debt.
WATC did not undertake any overseas medium-term note or bond issues during 2016/17 due to the ongoing comparatively lower cost of borrowing domestically through the benchmark bond program.
All WATC debt issued under its domestic and offshore borrowing facilities is widely offered and meets the requirements for exemption from Australian interest withholding tax.
In completing the 2016/17 borrowing program, WATC continued to tap into its existing benchmark bond lines on a reverse inquiry basis and also undertook three syndicated issues:
By the end of the 2016/17 financial year, benchmark bonds outstanding had increased from $31.274 billion at 1 July 2016 to $36.418 billion at 30 June 2017. The net increase of $5.144 billion is the result of $9.202 billion of new issuance over the year against $4.058 billion of bond repurchases.
Floating Rate Notes
During the course of the year, the 27 March 2017 FRN matured. On maturity, the amount outstanding was $1.337 billion, having peaked in mid 2016 at $3.150 billion on issue. In February 2017, WATC issued two new benchmark FRNs via a dual tranche syndication. CBA and NAB were joint lead managers for both new issues, maturing March 2020 and March 2022. The initial offering for these FRNs was $500 million in the March 2020 and $1 billion in the March 2022. Market response saw approximately 83% of both issues placed with domestic investors. WATC continued to issue into its existing FRNs in response to investor demand to accommodate the term floating rate borrowing requirements of its clients.
By the end of the 2016/17 financial year, FRNs outstanding had increased from $8.222 billion at 1 July 2016 to $9.376 billion at 30 June 2017. The net increase of $1.154 billion is the result of $2.946 billion of new issuance over the year against FRN repurchases and maturities of $1.792 billion.
Market Making Panel
WATC’s Market Making Panel plays an ongoing key role in price-making and distribution of WATC’s benchmark bonds and FRNs. The Market Making Panel and its contacts at 30 June 2017 are shown in Table 1.
Table 1: Market Making Panel at 30 June 2017
|ANZ Investment Bank||Mr Tim Wood||03 9095 0016|
|Citigroup Global Markets Australia Pty Ltd||Mr Matthew Zibert||02 8225 6450|
|Commonwealth Bank of Australia||Mr Stephen Powell||03 9675 7498|
|Deutsche Capital Markets Australia Ltd||Mr Matthew Yencken||02 8258 1444|
|JP Morgan Australia Limited||Ms Laura Fitzsimmons||02 9003 7905|
|Merrill Lynch (Australia) Pty Limited||Mr Nick Flett||02 9226 5569|
|National Australia Bank Limited||Mr Michael Hall||02 9295 1166|
|Nomura International plc||Mr Matthew Monaghan||02 8062 8619|
|Royal Bank of Canada||Mr Nick Rutherford||02 9033 3222|
|Toronto Dominion Securities||Mr Jack Bao||1800 646 497|
|UBS AG, Australia Branch||Mr Timothy Riley||02 9324 2222|
|Westpac Banking Corporation||Ms Leah Tinning-Saleb||02 8204 2711|
Taking into account overall performance throughout 2016/17, the leading institutions on WATC’s Market Making Panel were:
- Commonwealth Bank of Australia
- UBS AG, Australia Branch
- National Australia Bank Limited
- Westpac Banking Corporation
- ANZ Investment Bank.
Turnover in WATC’s benchmark bonds for the financial year ended 30 June 2017 was $304.0 billion (see Figure 4).
Figure 4: WATC Benchmark Bond Turnover – 2016/17
WATC’s domestic benchmark bond volumes on issue at 30 June 2017 and the turnover volumes for the financial year were:
|Volume on Issue ($ million)||Turnover Volume ($ million)|
WATC’s FRN volumes on issue at 30 June 2017 were:
|Maturity Date||Volume on Issue ($ million)|
Euro Medium Term Note Program
Since the establishment of WATC’s US$2 billion EMTN Program in 1990, 35 issues have been made in Australian dollars and other currencies.
Issues under this program can be made for terms from one month to 30 years, either through the dealer panel or on a reverse inquiry basis.
The dealer panel for the Program in 2016/17 comprised:
Citibank, N.A., London Branch is the Fiscal Agent, Principal Paying Agent, Principal Calculation Agent, Registrar and Transfer Agent for the Program.
During the year, the pricing of foreign exchange swaps meant that offshore funding was comparatively more expensive than equivalent domestic issuance. Opportunities in the Japanese and European markets were assessed but were outside WATC’s pricing targets.
There were no Notes outstanding under the Program at 30 June 2017.
Retail investors contributed $37 million towards the completion of WATC’s 2016/17 borrowing program. Of this amount, $9.5 million was borrowed from existing retail stockholders who elected to roll over their stockholding on the maturity date of their State Bonds investment. The volume of new money raised during 2016/17 was $27.5 million. These funds were sourced from:
Approximately $27 million was raised from designated investments during 2016/17.
In accordance with WATC’s approved pricing policy, WATC regularly monitors market yields and adjusts investment rates to ensure retail investors are offered a competitive interest rate.
Domestically, short-term funds are raised through the issue of short-term notes in the form of inscribed stock. In offshore markets, WATC utilises its multicurrency ECP Program.
Short-term Inscribed Stock
During 2016/17, WATC issued a total of $5.6 billion of short-term inscribed stock with an average weighted maturity of 124 days. This continued to be a reliable source of domestic short-term funds for WATC. At 30 June 2017, $1.87 billion was outstanding in short-term inscribed stock.
Aggregate monthly issuance activity for short-term inscribed stock is included in Figure 5.
The leading investors in WATC’s short-term inscribed stock facility for 2016/17 were:
- ANZ Banking Group Limited
- Westpac Banking Corporation
- Deutsche Capital Markets Australia Ltd
- Rabobank Australia Limited
- National Australia Bank Limited.
Euro Commercial Paper Program
WATC maintains a multicurrency ECP Program. The limit on the Program is US$6 billion and issues can be made for terms from 7 to 364 days through the dealer panel.
During 2016/17, WATC issued ECP in US dollars and New Zealand dollars, with US$990 million and NZ$513 million of ECP transacted. At 30 June 2017, on a transaction settlement basis, US$275 million was outstanding on this Program. All non-Australian dollar-denominated borrowing commitments arising through the ECP Program were swapped into Australian dollars through the foreign exchange market.
Aggregate monthly issuance activity for ECP is included in Figure 5.
Figure 5: Short-term Borrowings Monthly Issuance – 2016/17
The dealer panel for the Program comprised:
Citibank, N.A., London Branch is the Issuing and Paying Agent for the Program.