Woodside/CSIRO and Australia climate FI comments

3 minute read

An USD65trn investor coalition is airing its critique of Woodside Petroleum (WPLAU). In this report, we update on the revival of WPLAU CDS vs iTraxx Australia and comment on other news.

We have previously suggested that investors take a look at the relative spread of WPLAU vs the iTraxx Australia index, as we perceived that WPLAU had underperformed in equities but remained relatively flat in credit. This equity-credit dislocation has corrected since then, but with WPLAU equity outperforming in Q1 2022 rather than credit underperforming.

In terms of relative credit spreads, the differential between WPLAU and the index was rangebound through most of last year but compressed heavily in Q1 2022 in line with WPLAU stocks rallying. Conversely, the long (risk) iTraxx vs short WPLAU combination underperformed.

However, there has been a quite recent reversal of this dynamic, hypothetically based on investor concerns that WPLAU has appeared to have reduced the significance of government reports claiming gas field expansions are not climate positive.

In other climate exposure related Australia news, we note the UN Secretary General’s recent statements on Australia, as well as the statement by senior defence figures in the country, that climate change is the greatest threat to the country’s future and security. To us, this further illustrates that investors should keep a close eye on Australian exposures, not least from a risk mitigation perspective.

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