Debt financing in demand

DEMAND for debt financing will continue to rise, driven by the merger and acquisition cycle.

DEMAND for debt financing will continue to rise, driven by the merger and acquisition cycle, particularly the strong pipeline of infrastructure deals coming to the market next year.

Increased liquidity available in global money markets is also spurring activity as it pushes down the price of finance.

“We’ve got privatisation in NSW, Queensland, that’s really going to be the focus of the next year, and we will start to see large transactions, start to see more complex transactions, particularly to private placements,” said Kate Stewart, head of debt capital markets at BNP Paribas.

Both federal and state governments are embarking on large-scale privatisations in the coming years, with ANZ estimating between $100 billion and $125bn worth of electricity, port and water assets to be sold. The bulk of such sales, including the $5bn Port of Melbourne sale and the $11bn divestment of electricity poles and wires assets in NSW, will occur in the second half of 2015 and the first half of 2016.

Australia’s M&A market has seen a resurgence over the past year, with 77 deals announced in the 2014 financial year worth a total $44bn, from $11.6bn in the previous year, according to a Herbert Smith Freehills report.

Bankers and advisers are expecting to see more activity in the coming year, which will in turn drive asset buyers to seek debt funding. The surging demand for financing will be met by the increased liquidity in global markets, particularly in the European and US markets.

“Australian companies can now borrow long-term money in Europe and swap it back into Australian dollars at competitive interest rates,” Ms Stewart said.

“They (European investors) are very hungry for assets over there.”