With the First Corporate Deal of 2023, Telstra Ends a Five-Year Bond Drought

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Telstra, Australia’s largest telecommunications company, has ended its five-year bond market drought with a $650 million deal this Wednesday – the first Australian corporate deal of 2023.

This marks Telstra’s first corporate bond issuance in over a decade and indicates Australia’s improved economic conditions.

The 5-year term of the deal featured solid international demand, backed by local and international banks and government-backed agencies. The favourable swap rate meant that Telstra’s overall debt cost was reduced significantly compared to past deals.

Furthermore, this low-interest rate environment has enabled Telstra to access credit relatively easily, helping it to continue funding investments in technology and infrastructure development.

Bankers are optimistic about Telstra as a bellwether for investors considering corporate debt deals due to the company’s creditworthiness. The company has reported leverage of 1.8 times debt to earnings, which is considerably lower than the average for A-rated issuers at roughly two times. This indicates that Telstra has solid financials and can borrow capital successfully without taking on too much risk.

One factor that could encourage more corporate bond deals in the coming months is companies shifting their funding needs back to the bond market from bank loans. This trend has been observed for some time as global corporations increasingly move away from traditional debt sources and rely on alternative financing options such as bonds.

Jimmy Choi, the global head of capital markets at ANZ, said, “Companies pre-funded bonds in the last two years because COVID gave such strong pricing power.”

Telstra is one example of many Australian companies looking to tap into the local bond market for financing as investors warm up to corporate debt after years of shunning it in favour of government securities.

This bodes well for other players in the local financial markets, such as banks, asset managers, and institutional investors, who benefit from increased activity in trading volume and fees generated.

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