Sterling corporate bond issuance is soaring, but euro-denominated bond sales are at a six-year low – as more companies turn to the relative stability of the London market amid Europe’s financial turmoil,
UK and international companies have sold more than $42bn worth of sterling-denominated bonds so far this year – a 41 per cent increase compared with the same period last year, according to Dealogic.
Meanwhile, euro-denominated corporate bond sales have slumped almost a fifth, to $179bn – the lowest figure for the period since 2005. Dollar bond sales have increased 7 per cent.
“We’ve seen a lot of international companies come to the sterling market this year,” said Jean-Marc Mercier, a senior debt banker at HSBC. “It’s seen as a more stable currency, and investors here are interested in new credits.”
Corporate borrowing costs have climbed in the UK recently, but not to the same extent as in Europe, leading several continental companies to turn to London’s bond market, including France’s GDF Suez and EDF.
UK investors are also open to longer-term bonds than the European market, adding to the UK market’s attractions.
Companies outside of Europe have stepped up their sterling bond sales, as well. Recent issues include bonds from Amgen, the US biotech company, and America Movil, the Mexican mobile phone company. Petrobras, the state-controlled Brazilian oil company, is expected to sell a large sterling bond this week.
“Given the increasing volatility in Europe, issuers are becoming more aware of the need to engage with more investor pools,” said Richard Bartlett, head of European corporate debt markets at Royal Bank of Scotland.
Analysts have noted that London benefits from a stable of investors with deep pockets, who are now struggling to pick up large positions in existing bonds in the market, given the limp trading volumes.
John Ream, a senior trader at Citigroup, said: “There remains a lot of cash in the large UK funds and the only way they can put it to work right now is through the primary market.”
The Bank of England’s quantitative easing programme is also cited as a reason for the strong demand. When it buys gilts from banks and pension funds, some of this money is then rechannelled into the sterling corporate bond market, strategists said.
Investors now appear to view the UK as a haven across a range of asset classes. In addition to corporate and UK government bonds, or gilts, exclusive London property and the currency itself are benefiting.
“Sterling assets are certainly more appealing because the UK is outside the eurozone. A lot of investors are now looking more closely at location,” said Richard Batty, investment director at Standard Life Investments.
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