An expert from Monash University has warned that Australia must find a cheaper source of term debt funding that syndicated loans.
Dr Philip Bayley has undertaken significant research on the Australian syndicated loan and corporate debt markets, which has shown that borrower financial characteristics and product features will influence a choice between syndicated loans and corporate bonds for term debt funding.
“Oligopolistic competition is found to exist between the four major banks but the syndicated loan market operates under conditions of near perfect competition,” he said. “Nevertheless, corporate bonds are found to be a cheaper source of term debt funding than syndicated loans, for those companies that can access the corporate bond market.”
No evidence is found of loss-leader pricing of syndicated loans, however borrowers without term debt funding options are at risk of being held-up by their bankers, Bayley said. This means that borrowers without a credit rating will incur a significant economic cost on their term debt funding.
The comments come after in-depth research on the impact of the syndicated loan market on the development of the domestic corporate bond market.
Bayley will present the research at the Australian Centre for Financial Studies on May 7.
He said the issue is particularly topical in the post GFC environment where companies are seeking to diversify sources of term debt funding and are interested in advice on the options available.