Corporate Australia’s Refinancing Challenge

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A higher interest rate environment puts corporate balance sheets and cash flows back in focus as companies in need to refinance debt are facing an extra cost challenge.

Such environment creates extra risk for those under the pump or not well-prepared.

By Lily Brown

As the cheap debt taken on during the pandemic expires, new borrowing comes at much higher rates, with tighter lending and more investor scrutiny.

Property trusts, infrastructure firms, and high-yield borrowers feel this most. State Street Global Advisors’ 2025 outlook says cooling inflation and rate cuts could set up a soft landing, but markets are still volatile and stocks and bonds are moving more in sync, so portfolios need careful positioning.

Credit already looks expensive at current spreads, even though company fundamentals are solid, creating a delicate balance for both issuers and investors.

Mapping the Maturity Wall

ASX-listed companies have a lot of debt coming due over the next three years. Some are well prepared; others less so. The largest infrastructure players have proactively addressed their near-term obligations, while property trusts present a more mixed picture.

APA Group ((APA)) recently extended $1.75bn in syndicated loans during 2025, pushing major maturities beyond FY26. However, given its scale and frequent refinancing requirements, APA remains one of the ASX’s most significant recurring issuers.

Perpetual ((PPT)) has successfully refinanced its syndicated facilities, with no major maturities until January 2027 when a $400m bridge facility becomes due.

Among property trusts, the outlook varies considerably. Dexus Industria REIT ((DXI)) maintains no debt maturities until FY27, with a weighted average debt maturity of 3.3 years and majority hedged exposure providing stability.

Charter Hall Long WALE REIT ((CLW)) similarly benefits from a 3.6-year weighted average maturity with staggered obligations extending to FY27 and beyond.

The RBA notes higher-risk ASX firms may struggle to refinance in 2025–2026 as cheap pandemic-era debt is replaced at much higher rates. The share of vulnerable firms, measured by “distance to insolvency”, is still elevated, especially for heavily indebted names.

Ratings paint a split landscape. Transurban ((TCL)) refinanced a $700m corporate maturity originally due 1H26, keeping a 6.7-year weighted average debt maturity and over 88% hedged exposure. Group debt is about $25.9bn, supported by investment-grade ratings (S&P: BBB+, Moody’s: Baa1, Fitch: A-).

Big ASX companies generally have staggered maturities, strong liquidity, and investment-grade ratings that cut refinancing risk. The pressure is greatest on sub-investment-grade issuers or those with large chunks falling due in FY25–FY27.

Funding Evolution: Banks, Bonds and Hybrids

Refinancing playbooks have broadened. Companies are using more domestic bonds, longer bank facilities, and hybrids.

The biggest shift is onshore. Local bond markets are taking a larger share as lower currency and swap costs make AUD funding more attractive.

As Jimmy Choi, Head of Capital Markets at ANZ, puts it: “many Australian companies that historically went offshore are now saying, ‘Wow, I didn’t know we could do this domestically.’ Big companies with big balance sheets can now stay domestic. It’s cheaper to fund; they don’t have to do a cross-currency swap.“

Banks are also extending and reshaping facilities. Austal ((ASB)) finished a full refinancing in June 2025, replacing a syndicated facility with $488m of bilateral credit lines offering 5-10 year tenors, fewer covenants, and better pricing, supporting both liquidity and growth.

Hybrids continue despite rule changes for bank AT1 instruments. As of April 2025, 53 ASX-listed hybrids had a combined market cap of $43.2bn. APRA’s plan to phase out bank AT1 by 2032 shifts focus to Tier 2, but non-bank corporates still use hybrids to fine-tune capital.

Recent deals show depth and demand: Transurban Finance sold EUR650m of bonds in April 2025 (maturing 2035, 4.143% coupon) and issued multiple AUD bonds, while APA Group’s $1.75bn syndicated loan extension highlights the scale of activity among infrastructure names.

Sector Vulnerability: Who Feels it Most?

Property trusts (REITs) face the sharpest pressure. Morgan Stanley and Real Capital Analytics point to US$115bn of global REIT debt maturing in 2025–2026. Refinancing costs are expected to rise from 4.0% to 5.5%, adding about US$2bn a year in interest. Office, infrastructure, and healthcare property sub-sectors are hit hardest.

Australian REITs also deal with structural outflows and index concentration. Morningstar finds advisers prefer private markets and global REITs over local listed options. Office and retail are especially vulnerable as higher cap rates weigh on values.

Infrastructure benefits from regulated or contracted cash flows, which helps; but maturities bunched in 2025–2027 create execution risk, especially if inflation-linked revenue doesn’t fully offset higher interest costs.

Consumer discretionary companies with stretched balance sheets are highest risk. RBA analysis shows insolvencies rising mainly among smaller firms in slowdown-sensitive sectors, including consumer names with limited bank access.

Strategists line up with this view. Macquarie is defensive, “preferring exposures with structural or regulatory advantages (utilities, select insurers)” and staying “negative on those exposed to a slowdown, like consumer cyclicals.”

Coolabah Capital favours “liquid, high-grade Australian and global credit,” adding “floating-rate and short-duration credit should outperform as rising funding costs make companies’ balance sheet flexibility and access to liquidity vital.”

What it Means for Equity Investors

Higher refinancing costs squeeze earnings and dividends. A move from 4.0% to 5.5% adds roughly US$2bn in annual interest for REITs globally, cutting distributable earnings and testing dividend sustainability.

Balance-sheet strength is the differentiator. Companies with conservative leverage, longer maturities, and strong liquidity can keep investing and ride out the cycle, often winning better tenant demand and investor support.

S&P Global Ratings notes, despite higher rates, funds from operations to debt for rated REITs is holding up on rental growth. Weaker operators often respond with asset sales, dividend cuts, and equity raises to protect credit metrics.

Investment screening increasingly focuses on staggered debt maturities, conservative loan-to-value ratios and strong cash flow generation. Dexus research shows firms that reduce debt and extend maturities keep stronger investment-grade metrics and better control refinancing risk.

Navigating the Debt Landscape

Australia’s refinancing task has shifted from an era of ultra-low rates to a higher-cost world that demands tighter financial discipline. The biggest ASX names have moved early, diversifying funding, extending maturities, and keeping credit strong, making the gap between solid and weak balance sheets clearer than ever.

The next 2–3 years will test treasurers’ ability to absorb higher funding costs while still investing and paying shareholders. Early action, diverse funding options, and conservative leverage will matter most.

For investors, balance-sheet health should sit alongside earnings and valuation. Companies that prepared by managing debt conservatively and pushing maturities out are more likely to come out ahead in this tougher environment.

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