Government initiative to foster bigger retail bond market


The release by the Treasurer on 11 January of draft amendments to the Corporations Act to simplify disclosure by listed companies when issuing retail bonds and amend the provisions relating to the liability of directors for information provided to retail bond investors is yet another positive step to foster a larger, more diversified and active retail bond market in Australia.

However Australia Ratings considers that the changes in and of themselves are unlikely to be “game changers”. Nonetheless, the Government initiative is encouraging in signalling to the market the importance of having a larger and more active bond market in Australia.

Such an outcome will benefit companies who may wish to diversify their sources of debt finance and provide a larger pool of “plain vanilla or simple corporate bonds” for Australians to invest in as part of the capital stable component of their investment or retirement income portfolios.

Assuming the stipulation that to qualify for the revised treatment under the Corporations Act bonds need to be secured is a drafting error (we believe this was intended to be that bonds are not to be subordinated to other unsecured creditors), the most interesting item of the Government announcement is the new depository interest mechanism which will potentially allow trading by retail investors through the ASX of bonds held in the Austraclear clearing and settlement platform. The first bonds to trade through this mechanism will be bonds issued the Australian Government.

The use of a depository interest mechanism for bonds lodged in the Austraclear system and deemed to be simple corporate bonds will in the medium term unlock a larger pool of bonds in which retail investors will be able to invest.

The ‘game-changer” for the bond market will be when retail investors have access to a more diversified supply of investment options and a pool in which there is both retail and institutional investor trading.

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