Issuing securities in the international capital market is gaining popularity with corporates looking for affordable access to cash liquidity. Dan Kuhnel, Head of Primary Market Services at Euroclear Bank, looks at three things corporates should consider when developing their funding strategies.
Also below: Cagamas, a leading Malaysian debt issuer, discusses what it takes to build successful relationships with international investors
Corporate debt issuance has been brisk in recent years. This is due in part to low interest rates, however increased levels of volatility are now limiting issuers’ room to manoeuvre.
Sources of uncertainty stem from both regulatory and macro-economic developments. Many firms that traditionally had a heavy reliance on bank funding have experienced reduced lending appetite since the financial crisis of 2008. But the rolling introduction of the Basel III capital adequacy framework is continuing to squeeze bank lending capacity tighter, even where relationships are well-established and credit status exemplary.
On the macro-economic front, the distant prospect of rising rates is unlikely to choke off corporate debt issuance in the near term, but investor sentiment is hyper-sensitive to economic shocks. From concerns about Chinese debt levels to tumbling commodity prices to slumping price-earnings ratios, there are many potential causes of market volatility that can suddenly impact and limit funding supply.