Demand from non-resident investors is high The AER accepts that demand for CGS from non-resident investors has increased over the past few years and non-resident investors now hold a large portion of CGS. This conclusion is supported by the RBA in its advice to the AER: Within the Australian market, one notable source of demand for risk-free assets has come from non-resident investors, whose holdings of CGS now comprise more than three-quarters of outstanding supply. The number of AAA rated sovereigns globally has fallen over the past few years. The Treasury and AOFM note that 'Australia is currently one of only eight sovereigns to have a AAA rating with a stable outlook from all three major credit rating agencies.' The AER does not consider an increase in demand for CGS from non-resident investors, and subsequent decline in CGS yields, suggests a short averaging period is inappropriate. In the WACC Review final decision (2009), the AER stated its position that the benchmark firm operates in markets that inevitably include non-resident investors. The Joint Industry Association also considered this to be appropriate in a submission on the topic: (A)ny empirical domestic data on the risk-free rate, MRP, equity beta and gamma parameters have, or will certainly continue to be influenced by, both domestic and international investors. While the WACC Review is not binding in a gas context, the AER continues to hold this view. Increased non-resident ownership of CGS is reasonable in today's global markets. The increase in demand for CGS from non-resident investors is likely to reflect the low risk nature of CGS and the deep and liquid AAA-rated market. Basel III requirements are placing huge demands on the CGS market The AER accepts that Basel III requirements are imposing requirements on the way an Authorised Deposit-taking Institution (ADI) manages its risk. However, the AER does not accept that Basel III requirements are placing undue strain on the CGS market. The effect of the Basel III requirements is to require these institutions to hold quantities of liquid assets on their balance sheet large enough to withstand a 30-day stress scenario. CEG argued that these requirements are placing strain on the CGS market.
Demand from non-resident investors is high The AER accepts that demand for CGS from non-resident investors has increased over the past few years and non-resident investors now hold a large portion of CGS. This conclusion is supported by the RBA in its advice to the AER: Within the Australian market, one notable source of demand for risk-free assets has come from non-resident investors, whose holdings of CGS now comprise more than three-quarters of outstanding supply. The number of AAA rated sovereigns globally has fallen over the past few years. The Treasury and AOFM note that 'Australia is currently one of only eight sovereigns to have a AAA rating with a stable outlook from all three major credit rating agencies.' The AER does not consider an increase in demand for CGS from non-resident investors, and subsequent decline in CGS yields, suggests a short averaging period is inappropriate. In the WACC Review final decision (2009), the AER stated its position that the benchmark firm operates in markets that inevitably include non-resident investors. The Joint Industry Association also considered this to be appropriate in a submission on the topic: (A)ny empirical domestic data on the risk-free rate, MRP, equity beta and gamma parameters have, or will certainly continue to be influenced by, both domestic and international investors. While the WACC Review is not binding in a gas context, the AER continues to hold this view. Increased non-resident ownership of CGS is reasonable in today's global markets. The increase in demand for CGS from non-resident investors is likely to reflect the low risk nature of CGS and the deep and liquid AAA-rated market. Basel III requirements are placing huge demands on the CGS market The AER accepts that Basel III requirements are imposing requirements on the way an Authorised Deposit-taking Institution (ADI) manages its risk. However, the AER does not accept that Basel III requirements are placing undue strain on the CGS market. The effect of the Basel III requirements is to require these institutions to hold quantities of liquid assets on their balance sheet large enough to withstand a 30-day stress scenario. CEG argued that these requirements are placing strain on the CGS market.
Envestra%20draft%20decision%20-%20Part%203_1.docx