The outlook for the Australian securitisation market is healthy, with the majority of issuers expecting to maintain or increase issuance in the next two years. This is despite slowing demand for consumer and mortgage credit and tough macro-economic conditions, according to a report by Perpetual and the Australian Securitisation Forum (ASF).
The 2019 Australian Securitisation Issuer Report reveals securitisation issuance is strong, competition is valued, and issuers have no plans to slow down activity. It also highlighted issuers remained focused on actively balancing the needs of investors while proactively engaging with new opportunities in the market.
The study was conducted across Australia and New Zealand over two stages with 20 in-depth interviews conducted with issuers. Furthermore, an online survey captured the opinions of 35 issuers. According to almost three quarters of issuers, performance of the underlying collateral is a primary strength for the Australian market. The established track record in the sector was also cited as a strength, with just over half (54 per cent) of issuers noting historical market performance is a driver of demand, both locally and globally.
Despite this market stability, there is an undercurrent of uncertainty, largely due to macroeconomic headwinds such as the current housing market, and persistent regulatory change, which will bring both challenges and opportunities.
Chris Dalton, the chief executive of the organisation, said: “Issuance of new RMBS and ABS continues at a measured pace in 2019. New issues are well supported with demand coming from local and international investors and margins are relatively stable. It is pleasing to note from the report that both issuers and investors have a positive outlook for the coming year.”
The report says the outlook for New Zealand securitisation market is also positive “but with the caveat that growth is expected at a moderate rate”.
“However, the introduction of the RBNZ’s high-grade Residential Mortgage Backed Securities (RBMS) framework is expected to inject a lot more activity, and create a solid base for a RBMS market if it goes ahead,” the study says.
Long-established NZ issuers were well-respected in the market with a strong commitment to providing high-quality collateral. NZ issuers were also confident of further growth if strong local and Australian economic health continues.
Richard McCarthy, group executive of Perpetual Corporate Trust, said the Australian market was dynamic and ever-changing, and that issuers had always adapted to market conditions. “Simple structures and quality loans or collateral have always been a strength of the Australian securitisation market. Continued diversification of the investor base is particularly important for local issuers and we are seeing an increase in overseas investors which is encouraging. Continued engagement with their investor base is critical as issuers compete in a global marketplace,,” he said.
Dalton said: “Australian issuers have long understood the need for strong relationships with investors backed up with high levels of disclosure. Reflecting the importance of these relationships, the report highlights that the vast majority of issuers are retaining a consistent presence in the market to meet investor appetite.
“Issuers must be nimble with how they structure their offerings, as those providing a range of securitisation types reported a much higher level of confidence than issuers with less diversity, particularly when faced with shifting demand.”
The key findings of the report included:
- The health of the securitisation industry is stable, and more than 90 per cent of issuers expect to maintain or increase issuance in the next two years
- Quality of underlying collateral is a primary strength of the Australian and New Zealand markets and Australia’s established track record is a driver of demand locally and globally
- Challenges for issuers include macroeconomic outlook (54 per cent) a lack of secondary market (43 per cent), followed by impact of regulatory changes (31 per cent)
- Factors driving issue timing include an organisation’s funding needs (60 per cent) followed by maintaining a presence in the market (37 per cent) and to maintain investor relationships (29 per cent), and
- More than three quarters of issuers consider investor needs when choosing when to issue and how to structure deals.
Greg Bright is publisher of Investor Strategy News (Australia)