Australia Aims to Boost Retail Corporate Debt Market

Self-managed superannuation funds are expected to be among the biggest buyers of Australian corporate bonds issued under new laws designed to boost the fledgling retail corporate debt market.

The Australian government plans to make it simpler and cheaper for major companies to sell corporate bonds to retail investors, in an effort to give small investors a greater opportunity to invest in fixed income assets. Parliament is currently assessing the proposed legislation.

Dr Richard Sandlant, of the Treasury’s retail investor division, said that the products would be particularly appealing to older investors and trustees in the fast-growing self-managed super sector.

Bonds pay investors a fixed return and are typically more stable than shares, which are the biggest asset in most superannuation portfolios.

He added that debt securities accounted for only 0.7% of self-managed super funds’ assets, citing figures from the Tax Office. “Australians are relatively active equity investors but would benefit from being able to diversify into longer-term, lower risk and less volatile income streams,” Dr Sandlant said at a parliamentary hearing.

“With Australians living longer, simple corporate bonds provide an appropriate alternative to managing longevity risk, which is of particular interest to self-managed super funds (SMSF) trustees.”

The government’s move to encourage growth in the corporate bond market comes after experts expressed concerns over the heavy weighting to shares in the A$1.5 trillion super system. The proposed changes involve lowering the disclosure requirements for companies issuing corporate bonds and easing the liability on directors, but Dr Sandlant argued investors would still have adequate legal rights.

In an effort to limit the changes to lower-risk products, it is expected that only Australia’s biggest 200 companies will be able to issue bonds with the benefit of the new rules. The rules also will only apply to bonds with a face value of A$1,000 or below.

The draft legislation is before Parliament and currently the subject of an inquiry by the parliamentary joint committee on corporations and financial services. It comes as the Australian Securities Exchange (ASX) prepares to begin trading in Commonwealth government bonds in coming months, which is regarded seen as the first step in establishing a larger retail corporate bond market.

Banks and other big issuers of bonds also support the changes, which are also intended to lessen Australia’s reliance on volatile wholesale funding markets.

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