Legislation for retail investors to buy corporate bonds will not work
Regulatory changes to the Corporations Act intended to rev up the retail corporate bond market will not make a huge difference, according to industry insiders.
Aberdeen senior investment manager John Manning said the new legislation will not result in major changes in the retail bond market in the next six to 12 months as corporate Australia does not need a further funding at present.
"They have extended their debt maturity profiles over the recent years. Many of them have taken the opportunity to lock in low interest rates already and there seems to be a reticence in corporate boards to pursue a lot of aggressive growth strategies at this stage," Manning said.
Manning added that corporates should be issuing debt only if there is good reason for raising funding, and they should not be issuing debt for the sake of it.
Morningstar director of manager research Tim murphy agreed and believes it will be a costly issue even with the regulatory changes.
He said it is still going to be more expensive for corporates to raise debt for balance sheets if they are going to do that direct to retail investors versus the institutional market.
He said in most cases the benefit is not there for the issuer to go through the extra work they have to do to do that.
"That's why you haven't seen many issuers and I don't think that's likely to change in the near term," he said.
He said managed funds are a better avenue for retail investors wanting corporate bond exposure, particularly due to its diversification benefits.
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