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Europe’s embarrassing corporate bond drought

By Toby Fildes
21 Jan 2016

Talk about dry January. It hasn’t been the fizzy start to the year that European capital markets specialists were hoping for.

Take corporate bonds. While the US market rightly toasts last week’s spectacular $47bn M&A financing for Anheuser-Busch InBev, Europe is going through cold turkey. There have been just 10 deals so far in euros, sterling and Swiss francs, totalling €7.1bn. By the same point last year there had been €24bn.

Fears over global economic growth — vividly expressed in financial market volatility and a sinking oil price — are to blame. But these problems are hardly unique to Europe.

Despite the angst, US corporate issuance has hit $60bn and is hurtling towards a record January. It’s a reminder that the European markets, for all their progress in recent years, remain immature compared with their US counterparts — in both size and attitude. Those cocky bankers at the end of last year proclaiming that the euro had come of age as a funding currency for global issuers have had their wings clipped.

Eventually, of course, European markets will start crowing again. There is no credit crunch now: it is simply that investors are jittery and issuers are choosing to wait. Global markets looked much bleaker in January 2009, yet that year produced €38bn of European corporate bonds in the first three weeks of the year and an all-time record for the year of €371bn.

Eventually, issuers and investors will have to get on with it and do deals.

But until then, if borrowers are keen to avoid messy public markets, private markets look a good bet. Sterling, in particular, continues to surprise and innovate, with recent deals including private placements for Guy’s and St Thomas’ Charity, Oxford University’s Keble and St Hilda’s Colleges following 2014's privately placed securitization from Blenheim Palace, the birthplace of Winston Churchill. Rather like Churchill, the PP markets see no need for a dry January.

By Toby Fildes
21 Jan 2016