The Australian Bond Exchange (ABE) is poised to join ASX ranks later this year – giving investors access to the company’s growth potential within Australia’s $2 trillion bond market.
ABE plans to raise up to $10.4 million through an IPO to retail and wholesale investors.
Shares will be issued at $0.65 with the company planning to make its ASX debut in either late November or early December.
This follows a pre-IPO raising of $8.4 million via the issue of 16.8 million shares at $0.50 each.
ABE was established in 2015 to create a bridge between the wholesale over the counter (OTC) bond market and the public and has undergone “significant growth” since.
With an ASIC financial adviser licence, ABE describes its objective as “levelling the playing field” of the bond market while creating greater transparency.
It notes the bond pricing is transparent and does not have hidden, trailing or custodial fees.
Offer proceeds will go towards acquiring further bond inventory and driving uptake of its technology which is almost complete.
Almost half of the raising funds will go towards sales and marketing and the company’s focus shifting from institutional to private investors.
ABE established the Bond Exchange, which enables retail and sophisticated investors access to the OTC bond market and execute transactions in a manner identical to shares.
The company says its Bond Exchange has a very comprehensive list of criteria a bond must meet before it can be listed – claiming its admission criteria is very rigorous.
Using this model, clients can purchase bonds both online and over-the-phone.
Australian bond market
Australia’s bond market was capitalised at around $2 trillion in July, with more than 3,000 listed bonds – most of which private investors have not been able to access until now.
It is anticipated demand for bonds will rocket from 1.6% in Australia to ultimately match the OECD average of 43.6%.
ABE aims to broaden the number of participants in the bond market, while reducing operational costs and credit risk.
For the past two financial years, ABE has traded over $13 billion in bonds.
To enable this large trade turnover, ABE has established strategic partnerships.
The company has partnered with recognised fixed income resource house Bond Advisor which provides a further bond qualifying resource.
Another partnership is with market information provider IRESS. This partnership provides a gateway for wealth managers and retail advisers to direct transact in OTC bonds using IRESS’ interface.
ABE says it has made investing in bonds easier to access with a minimum investment of $10,000.
The company says its fees are also lower compared to other firms – giving clients higher yields.
Higher yield bonds
Investors are generally focused on higher yield bonds that carry returns between 4-7% with maturities from two-to-five years, a part of the market that is well serviced by ABE.
ABE has also started generating yield enhanced securities to meet investor demand for a viable interest income in the current low-rate environment.
The company predominantly operates in the corporate bond space where banks and corporations are the main issuers.
The number of Australians aged over 65 is predicted to rise from 16.2% of all Australians in 2020 to 24.4% by 2060.
Currently about 15% of all Australian retirement assets are in bonds, while the OECD average is 44%.
Most of this investment in bonds comes from superannuation and retirement funds.
ABE says the OECD average shows “substantial headroom” to increase Australia’s retirement investments in notes and bonds.
In the self-managed super fund space, the value of bonds in the investment mix is growing – rising from $538.5 billion in 2014 to $822 billion in mid-2021.
Contributing to the anticipated higher bond demand is waning interest in term deposits which has low rates.
Cornering the market
ABE has diversified business plans in the bond space. It aims to act as a bond exchange, an adviser, liquidity provider, clearing house and custodian/registry.
It has formed strategic partnerships to provide these services.
ABE’s revenue has rapidly grown since 2017 when it achieved $430.9 thousand in revenue for the financial year ending June 2017 to over $5 million in financial year ending June 2021.
In FY 2020, total turnover was $5.9 billion, and this has risen to nearly $9.3 billion in FY 2021.
The majority of revenue comes from gross trading margins and brokerage fees.