KfW, the German government-owned development bank, on Tuesday raised a tap issue of A$250 million from its existing A$1 billion five-year Kangaroo bond, taking the total up to A$1.25 billion, according to sources.
The tap issue – a procedure that allows borrowers to sell bonds from past issues – was fully subscribed, signalling increasing investor appeal for supranational, sovereign and agency (SSA) issuer paper in the market. The original bond had a coupon of 3.75%.
“Investor distribution was pretty broad – domestic and offshore – and came from a broad spectrum of accounts from across the region,” said a banker close to the deal.
Domestic and offshore distribution of the bond is 40% and 60% respectively, with the largest portion being bought by financial institutions at 47%, followed by central banks at 40%, according to sources.
Launched under KfW’s domestic Aussie dollar Medium Term Note Programme, the deal was priced slightly tighter by 1.5bp from the initial price guidance of 61bp above the Australian Commonwealth Government Bond (ACGB) 4.25% 2017s.
ANZ and Nomura are the joint lead managers for KfW’s bond.
The increased appeal for foreign issuers to access the market was supported by the Federal Reserve’s announcement last Wednesday that it would not yet start tapering its $85 billion monthly bond-purchasing programme.
Given the recently opened window and improvement in investor sentiment, other borrowers have also rushed to tap the Kangaroo bond market.
“On the back the Federal Reserve’s speech last week, investors certainly feel that they have a bit more time to put assets on balance sheet now,” said Andrew Koczanowski, head of debt syndication for Australia at HSBC. “Investors have very quickly started buying and issuers are obviously meeting that demand by issuing.”
Landwirtschaftliche Rentenbank, a bank that provides refinancing for all types of projects associated with agriculture and rural areas within the European Union, is marketing a 10.5-year Kangaroo at an initial price guidance of 52bp above swap, according to sources.
HSBC, Royal Bank of Canada (RBC) and TD Securities are the joint sales managers for Rentenbank deal.
Also, Inter-American Development Bank (IADB), the largest provider for development financing for Latin America and the Carribean, is marketing a five-year Aussie-denominated bond at an initial price guidance of 21bp above swap.
Commonwealth Bank of Australia, HSBC and TD Securities are the joint sales managers for the IADB deal.
Both of these deals are expected to price this week subject to market conditions, note sources.
Month-to-date September Kangaroo issuance from SSAs has reached a total of $2.17 billion with eight deals done, according to Dealogic data. This is a significant difference compared to June – shortly after the Fed began discussing possibilities of tapering in May – which recorded a volume of $23 million with merely one deal being executed.
