By Tim Gilkison
During a visit to Australia three years ago, I wrote a piece for Asian-mena Counsel which I opened with the observation: “Sitting in a coffee shop in downtown Sydney, a look around at the diversity of faces … it’s clear that Asia has come to Australia, [but] is Australia investing in Asia, and are Australian businesses taking full advantage of their geographical proximity to either the region’s mature or fast-emerging markets?” My conclusion to that question at that time was, in short, ‘no’.
I recently visited Sydney again and wondered how much had changed in the intervening three years. It’s probably fair to say that Australian investors and businesses have traditionally felt more comfortable dealing with entities from the US, the UK and Europe — places where they’ve had both historical ties and, given the heritage of the country’s legal system, face more familiar regulatory environments.
That hasn’t gone away entirely, according to Simon Venus, a corporate partner with domestic Australian firm Piper Alderman. “There is a still a reluctance to take the first steps for some businesses, particularly in the SME sector,” he says. “Language can be a barrier and Asian markets can also just be such an unknown for someone used to domestic consumer behaviour. Australian businesses keep getting told there are huge opportunities, but some still need to find the right platform which is a safe jumping off point.”
But things have been changing. Back in March of 2018, Australia hosted its inaugural summit with the Association of Southeast Asian Nations, during which the idea of Australia eventually becoming a member of the organisation was even mooted. However distant the reality of that might be, it was a sign of the changing status of Australia-Asia relations in both business and at governmental levels, on both sides.
According to Nikkei, Southeast Asia receives as much as 12 percent of Australian exports. And in late October the country’s parliament ratified the Trans-Pacific Partnership (TPP-11) agreement, which, despite the withdrawal of the US, has the support of many Southeast Asian nations. In fact, the move by the US to pull out of the TPP may well be a motivating factor in the warming ties between Australia and many of the region’s jurisdictions.
Indeed, Australians doing business in China are frequently asked for insights into the US trade war, says Venus. In such an environment, not being American is an advantage — and it is one that Australian companies are becoming more confident about exploiting. The government has also been supporting businesses by providing grants that make it easier for them to expand into Asia.
“With many of the new entrepreneurial and venture capital startups in Australia, we have seen a greater willingness to look for opportunities outside of the country in order to expand their customer base and market reach,” says Jason Opperman, head of the Australian finance practice at K&L Gates in Sydney, who has more than two decades of experience acting for and advising Australia’s largest banks and financial institutions on a range of insolvency, turnaround and securities enforcement matters.
“If you go back a generation many businesses here looked to import goods into Australia from Asia, but local businesses often weren’t really exploring the full potential of opportunities to scale up by tapping into consumer markets, and other markets across the region. That’s now changing.”
Importantly, this trend is not only a physical expansion into Asia. Australian companies are increasingly seeking opportunities to raise capital from Asian investors, rather than waiting for them to show up in Australia.
“Previously what we were seeing is Asian investors coming out to Australia, kicking the tyres on assets, negotiating on the ground and going back with an equity share in a business or a coal mine,” says Opperman.
It is a market development that at first came as a surprise to Eric Boone, a US securities specialist with K&L Gates who relocated from the US to Australia just over a year ago. He expected to be helping corporate clients raise capital from the US under Rule 144A, but the reality has been somewhat different. “Now I find myself increasingly a Regulation S guy, working on offerings targeting Asian investment from the large pool of money which has now developed there,” he says. “I must admit I’ve been astounded by that.”
The Reg-S market, which basically refers to international capital raised outside of the US, has always existed, but Boone says the focus on Asian investors is new. The market has evolved since the global financial crisis, when bank lending dried up and Australian corporates were locked out of their traditional source of borrowing. At first they turned to the US, where there was a deep and mature community of bond investors keen to access a new market. Eventually, Aussie borrowers started to realise that they could fill order books in Asia before the American investors were out of bed — and that they could do so cheaper and on better terms.
“Asian investors are just a little bit less formulaic than those in the US market; more open and innovative, and a little more earnest about the opportunities when they arise, whereas in the US, perhaps they think ‘another opportunity will come along’,” says Boone. “We really see this in the area of the high-yield bond, where Asian investors are more risk tolerant. And of course, from here in Australia, dealing with Asia you can do things more efficiently because of the geographical proximity and the lower time difference. You can launch a roadshow in Asia more quickly, which helps down the road in terms of investor relations.”
While it’s still too early to say that Australia has embraced its geographical reality as an Asian country, it is clearly moving in the right direction. With its mature legal and financial system, it has plenty to offer in terms of knowhow — and plenty to gain from Asia’s rapid growth and abundant capital. It will be interesting to check on progress in the coming years.
In 2020, the In-House Community™ will be hosting a Congress in Sydney focusing on regional in-house legal developments and Australia Outbound issues for in-house counsel. For more information on the event, please contact Tim.Gilkison@InHouseCommunity.com