Question 5: Why might the ASX have shown the liabilities of private non-financial corporations rather than any of the other sector grouping's liabilities? For example, financials' liabilities are also given in the tables of the financial accounts but they are not included in the ASX's graph.to equity capital raisings, businesses are able to externally fund their operations through debt issues and/or business

loans. In Australia, the liabilities of non-financial corporations are split around 50:50 between equity (listed and unlisted)

and debt/loans.

Of the non-equity liabilities, the primary obligations are shorter-term loans, placements and bills of exchange (35% of

total liabilities). The relatively short duration of such funding left companies exposed to significant refinancing risk when

the GFC prompted a severe credit tightening. In Australia, for example business credit growth declined in the year to

November 2009 to its slowest pace since 1992.

Long-term bonds only account for around 7% of total liabilities and around three-quarters of these were issued in

offshore markets, with only one-quarter issued domestically. Domestic corporate bonds issuance was depressed fromthe second quarter of 2007 through to the third quarter of 2009, although offshore issuance began to pick-up from the

first quarter of 2009.

Some commentators have suggested that the recent experience of very tight funding conditions for an extended period

may provide a significant impetus to the development of a corporate bond market in Australia. This would allow

companies to seek longer-term funding stability by issuing bonds with a medium-term maturity of 5-10 years.

However, to date, while some companies have sought the longer-term stability of issuing corporate bonds they have

tended to issue them in offshore markets, particularly in the US which has a well developed corporate bond market for

both public and private debt securities of short, medium and long-term maturities.

Deepening and broadening the local corporate bond market will have the added benefit of reducing reliance of Australian

companies on offshore funding sources and reducing the contagion risks (such as those experienced during the GFC)

when foreign markets experience difficulties unrelated to Australian circumstances.