Fitch Survey Shows Shift to Bond Funding for EMEA and Asia-Pacific Corporates

The results of Fitch Ratings’ 2010 Europe, Middle East and Africa (EMEA) and Asia-Pacific Corporate Treasury Policies Survey confirms corporates have increasingly turned to bond funding to raise fresh capital and away from traditional bank lending.

The survey confirms that, while the worst dislocations of the financial crisis appear to have passed, corporate treasuries are still feeling some after effects, and companies are continuing to hold higher levels of liquid assets. However, risk appetite is improving, with a move by a significant minority away from money market fund investments reported in last year’s survey reversed this year.

The findings of Fitch’s latest survey confirm the market perception of a migration from capital markets debt to bank debt, with 40% of respondents in developed markets stating they had increased their allocation to capital markets in the past year. The prevailing undertone of the responses shows that this is due to companies seeking to capitalise on opportunistic factors, such as pricing and availability, and that it is not being driven by a more fundamental change in behaviour. As such, pricing and availability will determine any longer term market shifts towards bond issuance in Europe.

The survey also shows clear signs that some companies have increased their holdings of liquid assets to protect themselves against more challenging economic circumstances and volatile capital and bank debt markets. However, the number of companies that have followed such a policy remain a minority, with two-thirds of respondents reporting no change to their holdings.

In emerging markets, the move to bond markets has been less pronounced, reflecting less developed capital markets. While current economic conditions are challenging, Fitch sees real prospects for growth in many emerging market bond markets in the medium term.

Issuers appear increasingly to be considering the retail bond market as a source of finance – 43% having considered this option. While developed market treasurers viewed this primarily as a supplementary source of funding, 62% of emerging market treasurers thought it could be a major source. Near-term this may prove optimistic as Fitch expects the surging retail bid in 2009 to moderate and likely recede in 2010.

The survey also revealed that treasurers appear to be increasing their holdings in money market funds (MMFs), reversing the reduction noted in the last survey. Of those surveyed, one-third said they were increasing their exposure to MMFs. Overall, the proportion of corporate treasurers investing in MMFs has remained stable compared to prior years. Almost all respondents who use MMFs also use credit ratings as a key investment criterion.

This is Fitch’s third annual treasury policies survey. Fitch obtained responses from 132 corporate treasuries, of which a third were based in emerging markets. The survey was conducted between November 2009 and January 2010.


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