New issuance by Europe, Middle East and Africa (EMEA) and US non-financial corporations rose sharply in 2012, exceeding scheduled maturities by a factor of around three to one as companies took advantage of record low rates to pre-fund their borrowing, reports Fitch Ratings.
The credit ratings agency (CRA) said that while investor demand for corporate debt is likely to remain strong in 2013, issuance may dip due to the high level of pre-funding and limited growth opportunities for many companies.
EMEA non-financial corporates issued a record €367bn of bonds in 2012, according to Fitch’s research, with the European Central Bank’s (ECB) support for the euro boosting issuance from peripheral companies in the second half of the year. This issuance served to pre-fund for 2013 and beyond, as well as to build out yield curves to include benchmark 10-year issues. It was also used to replace bank debt for some issuers, as the banking sector continued to deleverage.
An expected moderate increase in the ratio of capital expenditure (capex) to revenue in 2012 indicates that some of the proceeds were used for capital spending. But the CRA expects corporate capex in major advanced economies to be flat or only very modestly higher in both 2013 and 2014. This is supported by research that suggests Fitch-rated entities have not under-invested in recent years, based on the ratios of capex to corporate revenue and capex to depreciation and amortisation.
European corporates in particular are also likely to continue focussing on cash conservation, limiting spending via reduced dividends and merger and acquisition (M&A) activity as well as working capital improvements.
In contrast to EMEA non-financial issuers, where issuance was close to three times maturities, EMEA financial issuers refinanced 94% of 2012 aggregate maturities last year, with reliance on covered bonds increasing.
Total issuance from financial and non-financial issuers in the US market rose 32% to US$905.6bn in 2012, and also exceeded scheduled maturities by a three-to-one ratio. Non-financials accounted for the bulk of the growth, with issuance rising 41%, while financials issuance grew 11%.
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