Missed Opportunities in the Australian Corporate Bond Middle Market
Generally, primary issuance in the bond market is significantly larger than the equities market, but in Australia it is the reverse. This is especially so for the middle market in Australia which underutilizes corporate and project bonds in funding their capital stack. The graphs below show the comparative global primary issuance of bonds and equity. The bond issuance of US$27.3 trillion in 2020 dwarfs the US$827 billion in equity raised in the same year.
This is an opportunity lost for Australian issuers to access funding from this market, and it’s an opportunity list for investment banks and corporate advisors.
Some of the reasons for the lack of utilisation of funding via bond issuance include a lack of knowledge or experience by middle market companies, familiarity with and preference for mezzanine debt, the paucity of demand by institutional investors for high-yield bonds, and the unfamiliarity of the middle market with the costs and benefits of credit ratings from tier on agencies.
There are several advantages of a bond financing over mezzanine financing, including the potential to attract international institutional investors and family offices, and the potential to access these investors in new raisings, and listing the bonds on international stock exchanges.