Keepwell Agreement 2025: What Australian Businesses Need to Know

In a financial world shaped by volatility and shifting regulatory sands, the humble keepwell agreement has emerged as a strategic tool for Australian corporates and their creditors in 2025. These contracts, which quietly underpin billions in cross-border and intra-group loans, are now in the spotlight as economic headwinds force businesses and investors to scrutinise risk more closely than ever before.

What Is a Keepwell Agreement—and Why Are They Trending in 2025?

At its core, a keepwell agreement is a contractual promise by a parent company to maintain the financial health of its subsidiary. Unlike a formal guarantee, it doesn’t obligate the parent to directly pay the subsidiary’s debts; instead, it assures lenders that the subsidiary will remain solvent and capable of meeting its obligations. This subtle difference gives keepwell agreements a unique place in the corporate finance toolkit, especially for multinational groups navigating Australia’s evolving regulatory climate in 2025.

The uptick in use this year is driven by:

• Tighter credit markets: As RBA monetary policy keeps rates high to curb inflation, lenders are demanding stronger assurances on corporate debt.

• Cross-border M&A activity: With Chinese and US investors returning to the Australian market, keepwell agreements are being used to bridge regulatory and risk gaps.

• APRA and ASIC scrutiny: 2025 policy updates have pushed for greater disclosure of intra-group support arrangements in financial statements, making keepwell agreements more transparent but also more carefully structured.

How Keepwell Agreements Work: Real-World Examples

Consider the recent acquisition of a Queensland renewables company by a Singapore-based conglomerate. To secure bank financing, the parent signed a keepwell agreement, promising to ensure the Australian subsidiary maintained required financial ratios. This gave lenders enough comfort to issue a lower-interest loan, despite the subsidiary’s limited operating history.

Similarly, in the ASX-listed infrastructure sector, several large corporates have disclosed new keepwell arrangements in their 2025 half-year reports. These agreements, while not legally ironclad guarantees, signal to investors that the parent is committed to supporting its subsidiaries through potential downturns or refinancing crunches.

Key features of these agreements in 2025:

• Often tailored for offshore bond issuances, especially in Asia-Pacific markets

• Increasingly structured to comply with both IFRS and evolving Australian accounting standards

• Explicit triggers for support (e.g., minimum equity, liquidity thresholds)

• Disclosure requirements have tightened under new ASIC guidance this year

Risks, Rewards, and Regulatory Watchpoints

While keepwell agreements can boost investor confidence and enable subsidiaries to borrow at better rates, they’re not without risk. In legal disputes, courts in Australia and abroad have sometimes ruled that keepwell agreements are “comfort letters” rather than enforceable guarantees. This ambiguity means lenders must weigh the parent’s reputation and track record, not just the wording of the contract.

2025 regulatory trends to watch:

• ASIC enforcement: Companies must now disclose the existence and key terms of keepwell agreements in their financial reports, or face penalties for misleading conduct.

• APRA prudential standards: Banks are required to assess keepwell agreements as part of their credit risk models, potentially increasing capital requirements for exposures relying solely on these arrangements.

• Cross-border enforceability: With more deals involving offshore parents, Australian lenders are demanding legal opinions on whether a keepwell agreement would hold up in the parent’s home jurisdiction.

For corporate treasurers, the message is clear: keepwell agreements remain a powerful, flexible tool—but only if their limits and legal standing are fully understood.

Conclusion: Keepwell Agreements as a Strategic Lever

As the 2025 financial landscape grows more complex, keepwell agreements are no longer a back-office formality. They’re a strategic lever for funding, risk management, and investor relations—especially in a market where transparency and regulatory compliance are under the microscope. If your business is considering group financing or facing lender demands for additional support, now’s the time to review your approach to keepwell agreements and ensure they’re working for—not against—your long-term goals.