The Australian Centre for Financial Studies (ACFS) has released a report, titled Infrastructure Bonds: A Missing Market for Retail Investors?, which focuses on the potential for growth of and access to a domestic market in bonds linked to infrastructure provision. The report was written by Professor Kevin Davis, ACFS Research Director, and William Yin, a former Research Officer. It is the final report in a six-part series commissioned by National Australia Bank (NAB) on the topic of Australian debt securities and corporate bonds.
The report finds that although many retail investors have either direct or indirect equity investments in listed infrastructure operators, it is less common to hold investments in bonds issued by those operators – despite their significant reliance on debt financing. Instead, infrastructure operators have generally relied on bond issues in wholesale markets, as well as bank loan finance.
The risk and return attributes of infrastructure, as an asset class, are an attractive proposition for investors seeking long-term investment opportunities. In early 2016, there were 47 infrastructure bonds available to ‘sophisticated’ investors in the domestic secondary market, with a face value of approximately $11.5 billion. These bonds are generally not accessible to retail investors other than those classified as sophisticated. However, the supply of infrastructure bonds in the future is expected to be boosted by a strong pipeline of infrastructure projects, changes in bank regulation, legislative changes (including the ‘Simple Corporate Bonds’ legislation), and developments in digital technology. On the demand side, the prevailing low-interest rate environment suggests that the higher yields available on corporate debt (relative to deposits) may warrant greater attention by investors.
Following the release of the report, Professor Davis noted that: “There are a range of emerging factors which suggest that both retail investors and sophisticated investors should consider the role of infrastructure bonds in their portfolios. This report will help investors to understand these factors.”
With the conclusion of the six-part Australian Debt Securities and Corporate Bonds series, ACFS is proud to be continuing its association with NAB into 2016. The next ACFS report for NAB will be on the topic of retirement risk and asset allocation.
Infrastructure Bonds: A Missing Market for Retail Investors? can be accessed through the link below.
Media contact details:
Professor Kevin Davis
Research Director, Australian Centre for Financial Studies
T: +61 3 9666 1050
This is the sixth in a series of reports on the Australian debt securities and corporate bond market, prepared by the Australian Centre for Financial Studies (ACFS) for NAB.