Australian deposit-taking institutions are likely to issue covered bonds once proposed legislation is enacted, according to a recent report by Standard & Poor’s. The agency added that the highest rated and larger originators are most apt to float these deals.

On March 24, the Australian Treasury put out an exposure draft bill that would establish a legal framework for covered bonds. The proposal “sets out a framework that is broadly consistent with a number of other covered bond legislation systems around the world,” S&P said. But it still has to travel some distance before becoming law.

The agency has detected at least one potential contradiction in the draft’s explanatory memorandum. It says that the government expects the covered bond SPV will be bankruptcy remote from the issuer, while in another part it states that the SPV does not need to be independent of the issuer.

The proposed transaction structure can be seen above, while a link to the report is attached.

Meanwhile, Australian banks have been issuing covered bonds in New Zealand via subsidiaries. 

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