It has not always been easy, but the global debt capital markets have grown year-on-year by 4% to US$4.2trn in the first nine months of 2012. Access is a long way from comprehensive, but central bank presidents’ comments – well, one in particular – have helped to open markets further.
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Institutions remain highly selective but it is not just the best rated names that are welcomed with open arms, as investors’ desperate need for reasonable returns has driven high-yield markets, culminating in third-quarter issuance of US$110.3bn – the highest quarterly total since records began in 1980. A measure of just how quickly the tide has turned is that this more than doubled output in the previous quarter.
The resurgence in DCM – the third quarter of 2011 was the most sluggish since the near-stasis of Q4 2008 – has been so complete that for the first time European corporates have raised more funding through bonds than loans – 50.8%, versus 49.2%. The change from a norm of 70/30 in favour of loans has in part been a case of regulatory push as banks shrink their balance sheets, but also corporates enjoying safe-haven status. In many cases it would be easier for corporate national champions to borrow and lend their governments money.
The strength of appetite for investment-grade corporate issuance is so great that the biggest challenge for syndicate officials – concerned as they are to provide a reasonable level of return for investors – is holding clients back from setting yet another low yield record on new deals.
Select high-yield names are also enjoying a similar moment in the spotlight as the hunt for yield encourages investors to bet on (mildly) riskier names – it still isn’t easy to be Triple C, but investors will queue up for Double B names. Belgian cable operator Telenet illustrated this by pricing 10 and 12-year paper with a six handle and a BB rating and still generating oversubscription (and trading up after the break).
What happens if and when European sovereigns – and the national champions they drag down with them – join that club remains to be seen.
Perhaps surprisingly, financials have also been in favour, with the sector representing 50% of debt issuance in 2012 and banks from Australia and Brazil receiving a rapturous welcome on visits to the Yankee market. Indeed, Latin America is becoming an important source of issuance with 2012 likely to be the first US$100bn year.
Core European banks did just as well, but many remain humbled and hobbled by the ongoing sovereign crisis.
Away from the eurozone crisis there are also pockets of strong growth as Japanese investors increasingly pick up European securitisations.
In Asia, Mongolia offered great promise before local politics got in the way, but hopes are high that a strong end to 2012 could see a new resource-heavy option. While the Dim Sum market remains top dog among the locals it is facing growing competition in the region from the Singapore dollar with both onshore and offshore markets experiencing rapid growth.
As loan and equity bankers continue to operate with an axe hanging over their heads, their DCM counterparts are bringing home the bacon with a 15% rise in underwriting fees. Regulatory changes, an influx of cash, unpredictability in equity markets and a need for loans to pay for themselves have contributed to a strong year for DCM. Few of those factors are set to change in the near future, so it’s a case of Let the Good Times Roll for DCM in 2013 and beyond.