Project & Sustainable Finance has experienced strong growth and is now a consistent central topic in investment and strategy discussions. Sustainability-linked loans have increasingly gained popularity across borrowers, contributing to diverse ESG objectives, such as emissions reduction targets and decarbonisation. We have seen continued growth and hiring across project finance and advisory, with new bank entrants and independent financial advisory firms with European presence joining the Australian market, as well as existing platforms expanding their offerings. In addition there has been further investment by the Federal Government into renewables projects. Organisations are also publicly stating that they’re pivoting towards renewables and into adjacent spaces that go with renewables, e.g. rare earth extraction, critical minerals, engineering and mining services. Infrastructure activity has been slower compared to previous years, but remains strong.
Leveraged & Acquisition Finance activities have seen some refinancing and PE to PE deals, while M&A has been well down. There has been a lot of pitching activity, but the overall market has been much quieter than in the past 2 years. PE firms have remained active in seeking acquisition opportunities and investor appetite remains robust, supporting a stable demand for leveraged buyout deals. Concerns about rising interest rates, revised valuations/debt gearing and potential economic headwinds have made banks more cautious, leading to a more diligent assessment of credit risks associated with leveraged loans. Meanwhile, the demand for private credit is continuing to increase as a popular source of funding, taking the space from traditional lenders and offering additional flexibility, reliability and speed of execution.
Loan Capital Markets (Syndications) experienced vibrant growth, with several international banks building out and/or strengthening syndications teams, which have been supported by a healthy pipeline of infrastructure and renewables projects. Syndicated loans continued to be a preferred financing option for project developers, enabling them to pool funds from multiple lenders, sharing risks while catering to the diverse needs of borrowers. We therefore expect to see this as an area of growth. Rebounding markets will see an increase in syndicated lending, alongside continued growth in private credit.
Debt Capital Markets (Bonds): After a quieter 2022, with interest rates rising, closing the gap between loan and bond financing, activity has increased in H1 and is expected to continue into H2 of this year. Both government and corporate bond issuances garnered healthy demand from investors seeking stable fixed-income assets. The government's fiscal measures and economic stimulus packages contributed to the issuance of government bonds to finance public projects and support economic recovery. Corporations utilised favourable market conditions and low-interest rates to raise capital through bond offerings.
The Outlook
Thoughts on everyone’s agenda are heavily focused on all things renewable and energy transition-related and this will continue to be the dominant theme for the foreseeable future. The debt markets' resilience and adaptability, coupled with the continued expansion of international banks, are likely to drive further opportunities and advancements as we move into H2 of 2023. Banks will remain attentive to potential challenges, such as rising interest rates and shifts in global economic conditions but on the whole, we can expect a more positive outlook for the balance of this year.
To discuss the above or opportunities more generally, please call Rob Hockedy - JMES Debt Specialist on 02 9235 9470 / rhockedy@jmes.com.au
