Debt capital markets are becoming increasingly divided between the safest, largest companies, which can borrow easily and cheaply, and smaller or heavily indebted companies, which are facing a tougher time attracting bond investors.
Overall global corporate bond issuance fell to $511.7b in the fourth quarter, down 21 per cent from the same period last year, according to Thomson Reuters data. Bankers and fund managers say corporate borrowing on global debt markets is becoming a case of “haves and have nots”.
Global bond issuance by companies rated below investment grade, or “junk”, rebounded from a miserable third quarter to a still disappointing $37b in the last three months. The average coupon for fixed rate, junk-rated bonds rose to 9.24 per cent in the last three months, up from
9.15 per cent in the third quarter, according to Thomson Reuters.
By contrast, investment-grade companies continue to benefit from investor hunger for safety and low government interest rates in many countries. The average coupon paid by fixed-rate investment-grade corporate bonds fell in the fourth quarter to 3.92 per cent, down from 4.23 per cent in the third quarter.
The division between investment grade and junk-rated companies is particularly sharp in Europe, with the eurozone sovereign debt crisis. Pressures on banks to shrink, coupled with risk-averse high-yield bond investors, will cause defaults to climb once more in Europe next year, analysts argue.
“We’re most worried about the European mid-market,” says a senior banker. “There will be money for the medium-sized companies, but it will be more expensive. Smaller companies that cannot go to the bond market and rely more on banks will struggle more.”
The resurgent eurozone crisis has also rattled global equity capital markets activity, which slumped 14 per cent to just $90.8b in the fourth quarter, the least active three-month period since the start of 2009.
Initial public offerings in particular have found it tough, given the volatility of global bourses. The volume of global flotations has slumped 39 per cent this year to $162b, with just $25.5b worth of shares issued in the last three months of the year.
One bright spot was Asia, which accounted for two-thirds of all successful IPOs in the fourth quarter, thanks to companies including Chow Tai Fook, a jewellery retailer, and New China Life Insurance, which raised $2b and $1.3b respectively earlier this month.
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