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Investors Join Forces For Enhanced Transparency

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European investors including Standard Life Investments, Morley Fund Management and Prudential M&G are joining forces to push for increased transparency in corporate bond sales.

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European investors including Standard Life Investments, Morley Fund Management and Prudential M&G are joining forces to push for increased transparency in corporate bond sales. Investors said transparency in sterling and euro transactions lags far behind the level of disclosure in dollar deals. "We don't want to wait for another 20 Parmalats to make the bond market aware of the risks of inadequate information," said Stephen Wilson-Smith, head of credit research at Prudential M&G in London.

Representatives from the fund managers are among those on an Association of British Insurers committee that will work with issuer and dealer trade groups to develop a base case of transparency guidelines.

The ABI, with more than 400 members, ignited the debate on transparency last week with a paper titled "Standards in the sterling and euro fixed income credit markets." The key improvements investors want include ongoing disclosure of business performance, as well as clearer language and terminology in bond documentation. "In the U.S., any company with a bond outstanding is required to produce publicly available financial statements on a regular basis and in a timely fashion," said Wilson-Smith. "In Europe, there is no such requirement, and if a company goes private, there is no information whatsoever, and the only way bondholders find out something is wrong is if the bond defaults."

Wilson-Smith noted that senior unsecured debt does not receive the same legal recognition in Europe as it does in the U.S., and can end up being very subordinated. "For example, in the event of a recapitalization such as the one which might occur at Marks & Spencer if [investor] Philip Green succeeds in acquiring it, there will be a transfer of wealth from public bondholders to private shareholders," Wilson-Smith said.

The committee consists of Rod Paris, director at Standard Life; Simon Pilcher, chief executive of fixed income at Prudential M&G; Andrew Tunks, head of bonds and treasury at the recently merged ISIS and Foreign & Colonial; Stuart McMaster, investment director at Scottish Widows Investment Partnership and Ceris Williams, head of fixed income at Morley.

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