Australian Banks To Begin Issuing US Dollar Denominated Securities

Australian lenders have begun the process of securitising their asset backed debt into US dollar denominated securities, which may have the impact of boosting competition in the market for mortgage lending.

Over the last week Macquarie Group and Members Equity have both begun selling US dollar denominated asset backed securities as they seek to attract European and US investors that are keen to have to exposure to Australian securitisation issues.

Analysts say that the strong reception the two deals received means that more deals are likely to be forthcoming, most likely from smaller non bank finance companies, which in turn could mean a more competitive lending market, given that securitisation is the primary source of funding for non banks.

The two deals are the first time Australian issuers have tapped the US dollar securitisation market since before the collapse of Lehman Brothers in September 2008.

Ilya Serov, an analyst with credit ratings agency Moody’s Investor Service says that international investors were extremely comfortable with Australian credits and if the deals end up being successful, then other issuers were likely to try and replicate them.

Issuers tend not to sell US currency denominated securities unless they are extremely optimistic about international interest, because it tends to cost a lot to issue debt in a foreign currency.

Issuers selling securities in US dollars, must absorb the cost of converting funds raised into domestic currency, which is also known as the cross currency basis swap. This swap rate blew up during the financial crisis and is still currently at about four times the level is has been over the last decade.

The wide swap rate essentially means that any profits would have effectively been erased.

Over the last couple of months many international investors amongst them Aberdeen Asset Management, one of the world’s largest fixed income investors have expressed interest in investing more in Australia.

At the same time, a $16 billion program by the Australian Office of Financial Management to buy RMBS has helped bring spreads in.

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