Improving eurozone sentiment during the second half of 2013 drove investors to seek yield from corporate bond issuers in the periphery economies of Greece, Italy, Ireland, Portugal and Spain, (GIIPS), with Spanish companies seeing a 45% jump in issuance over the period over H212, reports Fitch Ratings
The credit ratings agency (CRA) reports that overall, corporate bond issuance from the GIIPS rose by 22%, and while Italian issuance fell by 9%, the other three countries all saw healthy rises. This trend in the periphery was mirrored in the emerging Europe region. The ratio of bonds to total new debt rose to 43% (40%) for GIIPS entities and to 38% (28%) for central and eastern Europe (CEE) companies, putting both regions roughly on a par with core European companies.
CEE issuance shot up by 58% making the region account for 10% of total European new bonds in 2013. However, Russia continues to dominate the region with 60% of the total and 2H13 suffered from Federal Reserve taper-induced emerging market (EM) concerns, with less than a quarter of the year’s volume achieved.
Increased bond issuance by companies in non-core countries, not just in absolute terms but also relative to bank borrowing, indicates that banks are unwilling or unable to support economic growth in the corporate sector in the slowly recovering periphery. This highlights the balancing act policymakers face in strengthening banks’ financial positions without negatively affecting the cost and availability of credit.
In Europe as a whole, corporates raised a total of €446bn in bonds in 2013, down 6% on the prior year. The decline occurred during 2H13, following a strong start to the year. However, the ratio of bonds to total new debt (bonds and loans) stayed high at 43%, compared with the 30% average since 1999. Loan volume rose 14% to €600bn as corporates in France, Germany and the UK reduced their reliance on bonds, issuing 16% less, while borrowing from banks was up by a quarter.
Fitch adds that following a strong start to 2014, the European corporate bond market is likely to see continued pre-financing activity and deepening of the market with more new issuers seeking greater funding diversity. ECB stress tests will continue to supress bank risk appetite for lending.
The full report, entitled
‘European Corporate Funding Dashboard 1Q14’
, is available at www.fitchratings.com.
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