Moody's Investors Service says rated Australian corporates will be able to manage the refinancing of some A$23 billion (US$24 billion) in maturing debt over the next two years ending June 2013, while 2013 overall stands out as a year in which an above-average amount of maturing debt will coincide with elevated requirements for new debt to fund investment plans.
"Despite the prevalent volatility in global markets, this refinancing task of A$23 billion is manageable, given that Australia remains an attractive sovereign risk; all debt maturing in the next two years is rated investment grade; and the diversity in funding sources now apparent should likely continue, absent an abnormal market disruption," says Terry Fanous, a Moody's Senior Vice President.
"Australia remains an attractive sovereign risk amid heightened uncertainty in the global macro environment, including renewed signs of weakness in the pace of recovery for the US and Eurozone," says Fanous. "Moreover, all debt maturing in the next two years is rated investment grade, and the A$23 billion up for refinancing does not greatly exceed the amount of debt raised previously," says Fanous.
Fanous notes that rated corporate issuers have demonstrated the ability to raise debt with new debt issuances of about A$10 billion in the six months ended June 2011. "However, over the next two years, capital-intensive growth projects will likely absorb large amounts of capital, and we forecast rated companies will need to raise around an additional $10-12 billion in debt to fund growth," says Fanous.
The diversity now evident in sources of funds should continue. "In the debt-capital markets in particular, issuers are diversifying their funding sources as a corporate strategy to reduce reliance on bank loans, now that banks are gradually phasing-in new banking requirements under the Basel III protocol which could see some credit rationing," adds Saranga Ranasinghe, a Moody's Associate Analyst and co-author of the report.
"Finally, we expect issuers to maintain a level of conservatism in managing liquidity," Ranasinghe says, adding "the high level of cash holdings should remain a key feature of the sector's liquidity profile."
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