Rise in Irish companies turning to the bond markets
IRISH corporate borrowers tapped the bond market for €5.5bn of new debt last year – or 15pc more than 2012. The increase reflects a strong appetite among bond investors but also banks’ reduced role in the lending market, according to rating agency Fitch.
As a class, corporate borrowers exclude the likes of the State and the banks but include trading businesses like Eircom, Ardagh Group and Bord Gais which all tapped the market last year.
Smaller companies are by and large excluded from the bond markets, particularly in Europe, leaving them much more dependent on banks.
Irish corporates raised €5.52bn on the bond market last year, up from €4.793bn in 2012, according to Fitch which cited data from Dealogic.
In Spain the numbers are even more stark, there corporate bond issuance surged by 45pc in 2013, according to the same research.
Across the euro area periphery of Greece, Ireland, Italy, Portugal and Spain corporate bond deals were up 22pc.
In Europe as a whole, corporates raised a total of €446bn in bonds in 2013, down 6pc on the prior year.
In the peripheral countries, bond deals accounted for 43pc of all new debt raised by corporates in 2013, a market traditionally dominated by the banks.
“Increased bond issuance by companies in non-core countries, not just in absolute terms but also relative to bank borrowing, indicates that banks are unwilling or unable to support economic growth in the corporate sector in the slowly recovering periphery,” Fitch analysts said.
One factor in that may be the euro-wide stress testing of banks due to take place in the second half of this year. Fitch said those tests are discouraging banks from lending.
“ECB stress tests will continue to suppress bank risk appetite for lending,” the agency said.
Investors’ hunt for yields in 2013 was also a big factor in the markets. For example Eircom was able to borrow €350m on the bond market by offering a yield or interest rate of 9.25pc.
The deal turned heads because it came within a year of the company entering examinership and “burning” previous bondholders.
Unlike bank loans bond debt is generally non-amortising – meaning the debt is repaid on an interest-only basis with a single repayment of principal at the end of the life of the deal.
In many cases it makes bond debt less costly to service on an annual basis than bank loans even if the official interest rate is higher.