Fitch says EMEA Corporate Issues Hit Record in 2013

Non-financial corporate bond issuance in Europe, the Middle East and Africa (EMEA) rose to a new high of €383.3bn in 2013, while financial-sector issuance hit a new post-crisis low as covered bond volumes dropped sharply, according to Fitch Ratings’ calculations.

The credit ratings agency (CRA) reported that non-financial corporate issuance in 2013 was 4% higher than the previous year’s record level. The growth came as companies took advantage of tight spreads and low yields to refinance and extend debt maturities. It also reflects continued disintermediation in the region as corporates tap markets directly to replace bank loans.

Issuance was particularly strong in the energy sector, which accounted for 17% of corporate issuance compared with 12% a year earlier. This increase was spurred by high upstream capital expenditure as high oil prices make it economical to extract oil from more technically challenging formations and geographies. The telecom and automotive sectors also saw a slight increase in their share of the corporate bond market.

By contrast, financial-sector issuance dropped by 27%, largely reflecting deleveraging of banks’ balance sheets. The headline figure was driven by a 47% fall in covered bond issuance, particularly from Italian and Spanish banks in the first nine months of the year. This fall highlights the deleveraging at banks in both countries, but also indicates steadily healing market conditions over the course of the year. The proportion of covered bonds as a total of financial-sector new issuance fell back to around one-third from more than 45% in the past two years.

The divergent trends mean non-financial corporates also snared a record share of EMEA issuance in 2013, with 41% of the region’s total corporate issuance compared with 33% in 2012 and more than double the pre-crisis levels of 2006 and 2007. However sentiment towards financial sector issuers improved towards the end of the year, with strong Q4 issuance and spreads trading within 20 basis points (bp) of their non-financial counterparts – the tightest since February 2008.

Fitch said its expect issuance from developed-market EMEA non-financial corporates to remain strong in 2014, supported by a modest increase in capital expenditure (capex) and the continuing favourable market conditions and relatively low interest rates. Emerging market (EM) issuance will probably face increasing headwinds from slowing growth and weakening fund flows on the back of the US Federal Reserve’s tapering programme.

The CRA said it will publish more details on this data in its quarterly report
‘EMEA Corporate Bonds: Rating and Issuance Trends’
in early February.


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