Loans and High Yield

Capital markets people thought Brexit would not happen because the UK electorate always chooses the sensible option in the end. But it hasn’t.

Talking to clients, readying deals set to come in the next two weeks, high yield and leveraged loan bankers on Friday began gearing up to fight gloomy forecasts for the post-Brexit world.

The UK’s decision to quit the EU has dealt an immediate hit to currencies, credit and equities, but also puts key components of the European derivative market in doubt.

Capital markets have been hit by a cataclysm, the worst political shock since 11 September 2001 — though the immediate effects on financial markets may not be as grave as those of the 2008 financial crisis, because the solvency of banks is not in question.

Jiangsu Hanrui Investment Holdings defied the quietness in Asia’s primary capital markets on Thursday with a rare high yield bond from a local government financing vehicle. Although market observers welcome growth in the new asset class, some are cautious about the standalone credit strength of smaller LGFVs.

Hengdeli Holdings and eSun Holdings have announced the results of their respective tender offers for international bonds.

Leveraged loan investors this week showed healthy appetite for core European deals as French data processor Tessi and German jewellery maker Amor began marketing their acquisition loans.

Swedish firm AR Packaging this week began marketing €240m of loans to fund its acquisition by CVC Partners from Ahlstrom Capital and Accent Equity.

CP Pokphand, part of Thai firm Charoen Pokphand Group, has raised a $600m loan to repay outstanding debt.

Markets watchers in Asia said they were optimistic, as GlobalCapital Asia went to press on Thursday, that next week would be a return to business as usual, given their widespread expectations that the UK would choose to remain in the European Union. But some warned that, irrespective of the outcome, currency risks could spill over to other asset classes, adversely affecting bonds and equities.

Emirates NBD has signed a $1.7bn three year loan facility, increasing it from $1.25bn following a strong investor response.

China's State Administration of Foreign Exchange (Safe) has expanded a pilot renminbi conversion scheme to all non-financial companies, allowing them to repatriate offshore bond proceeds. This will help reduce confusion over different rules from different regulators and boost direct offshore bond issuance, said market participants.