Cost of capital vs. debt 

I'm David Linke. I'm the National Head of M&A at KPMG in Australia.

In terms of the rulings issued in relation to the disposal of shares by foreigners, I mean it's creating a deal of uncertainty. Now if you speak to my Indian colleagues they will say that the uncertainty created by the Indian tax position will be overcome by the lure of investing in India. Okay, so the foreign investors will still come and I think there's a view advance that the same will happen in Australia because of our significant supply of natural resources. It's interesting though, some of the major U.S. based PE funds have said recently that that uncertainty is never great. Australia is a capital-importing nation. We need to provide foreign investors certainty because that capital is mobile and they may go elsewhere. So being left in a sort of the uncertain position requiring constant dialogue with the Australian revenue authorities is not a great outcome for foreign investment in the country.

One of the other issues that is at the forefront of the minds of investment bankers and other people in the transaction space in the Australian environment at the moment is really a cost of capital issue. I mean you have Basel III, you know, coming in for the Australian financial institutions and there will be greater capital being required to be held against particular asset classes. So there's a concern as to what that will mean for the cost of finance to fund particular projects be they acquisition finance to acquire companies in the financial sponsor space or whether they're financed to fund capex programs in the resources space. So I think it's an interesting issue which will play out.

I mean there's not only a funding issue for the financial institutions going forward. We just saw for example the issue with the Woolworths notes. Okay and those notes I think take up of $670 million of notes were issued yet $5 billion of subscription applications were received by the company. So I think it's one of the most heavily oversubscribed issues in the history of the country and what it reflects is there's a lot of cash sitting on the sidelines looking for a highly rated Australian corporate paying, I think it was – I think it was 3% over bank bill rates, 3 ¼% over bank bill rates. So, in a sense this is cash that may have been in deposits in a bank account, but now looking for a high yielding investment yet from a highly rated Australian corporate. So I think we'll see more of that over the next twelve months.