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Print articleLending and Taking Security in Australia: Overview
July, 2013 - Matthew Cunningham, Daniel Marks, Leigh De Jong and Stewart Robertson
2012 was a challenging year for Australia's loan markets. Australian loan markets were affected by continued uncertainty in global markets due to concerns over the Eurozone, the slowdown in China, a weak recovery in the US and, towards the end of the year, concerns around the US "fiscal cliff". Locally, there has been a lack of confidence among corporates, resulting in sluggish M&A activity. Certain sectors of the economy remained relatively soft, such as the retail sector. Some mining investment was also deferred on the back of declining commodity prices.
As a result, lending activity has been subdued. Refinancings continue to be a mainstay of the market, although volumes have been lower as many large refinancings completed in the last quarter of 2011. Although several project and infrastructure financings in the energy and resources sector were executed in 2012, conditions for new merger and acquisition activity remained soft and there has not been a lot of event-driven activity. The scale of project finance loans, in particular in the LNG sector, has seen a greater presence of export credit agencies as an alternative project-funding source.
There has been a trend away from syndicated debt and towards bonds, bilateral loans and club loans (bilateral loans on largely common terms as between the financiers). For larger borrowers, domestic bond markets and other offshore markets have been accessible, while smaller and midcap companies are more confined to the bank debt market. To some extent, a debt divergence occurred, where large, well-rated companies have been able to obtain funding at cheap rates, while smaller lower and non-rated entities continue to face challenges in obtaining financing from the bank debt market. This was driven partly by local banks' increased cost of funds due to the new Basel III capital requirements and decreased access to offshore funding leading to a higher reliance on deposits as a source of funding.
