The shift towards bond market financing of European companies is inexorable, but the path is likely to be bumpy. That was the conclusion of around 180 delegates at Euromoney’s third annual Corporate Financing Forum, held in Paris on November 28.
Regulatory changes, deleveraging and a retreat to domestic markets have made bank balance sheets scarcer and more costly to deliver to corporate clients. A search for yield in a low interest rate environment has spurred investors into the corporate bond universe. Taken together, those trends have made the market for company bonds the fastest-growing sector of the fixed income world.
But the fragmented nature of the European bond-buying landscape and the paucity of risk-taking capacity among broker-dealers have left the corporate bond market often volatile and illiquid.
Jean Lemierre, special adviser to the chairman of BNP Paribas and boasting a long and distinguished career in public life – including two terms as European Bank for Reconstruction and Development president – said that European banks were fundamentally changing the way they dealt with their clients. In an opening interview he also said that a banking union in Europe was essential and that while he did not have a road map it should embrace as many financial institutions as it could. “As wide as possible,” was Lemierre’s prescription.
Throughout the day, corporate treasurers argued that they were having to widen the number of financing options open to them, particularly as market opportunities tended to come and go. Even four years after the onset of the crisis in 2008, liquidity is still the key concern, said Mark Eaton, head of group tax and treasury at Adecco, the global recruitment business based in Zurich. Luis Montesinos, treasury and tax director at Campofrio Food Group argued that task had to be viewed against a background of banks increasingly discriminating between companies with operations in countries where sovereign risk was heightened. “It hasn’t been easy,” he replied when asked what it was like to run a treasury operation based in Madrid.
For international companies in dollar-based industries, access to liquidity in that currency was a crucial issue, said Gary Admans, debt capital markets manager at oil giant BP. That was why his company had been so active in the Yankee market, although the basis swap made crossing the Atlantic attractive even for Euro-based issuers.
Other companies said they had been active in tapping more localised sources of investor interest in Europe, including the often-overlooked German Schuldschein market. Corporate bond markets in Europe remain far less developed than in the US but according to Euromoney’s Corporate Financing Forum, they will be one of the key growth areas in coming years.
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