Global borrowing blitz led by blue chips selling US$43bn

06 Sep, 2024 - 00:09 0 Views
Global borrowing  blitz led by blue chips selling US$43bn

Companies globally are piling into debt markets to sell bonds and loans while they still can.

More Asian firms including Meiji Yasuda Life Insurance Co offered notes Wednesday, after nearly 30 blue-chip companies sold about US$43 billion of bonds in the US market on Tuesday, the busiest single sales day by number of issuers, according to data compiled by Bloomberg.

Borrowers are navigating volatile market swings again as investment-grade credit spreads in Asia gaped wider and stocks in the region tumbled by the most since the August 5 rout, tracking a US sell-off.

The onslaught in bond deals comes however as corporate finance chiefs are eager to lock in more favourable borrowing costs. Bond yields on global investment-grade corporate debt averaged 4,52 percent as of Tuesday’s close, near their lowest level in about two years.

“For issuers that are looking to print a low coupon, you could clearly see why they would be hitting the market at this point,” Robert Tipp, chief investment strategist and head of global bonds for PGIM Fixed Income, said in a phone interview.

In Europe, 24 companies and government-tied issuers raised €22,6 billion (US$25 billion) from debt markets on Tuesday, while Asian borrowers, including the Indonesian government sold a total of US$5,6 billion of US-currency notes on the day, data compiled by Bloomberg show.

“We continue to prefer higher quality credits,” said Mark Reade, head of credit strategy at Mizuho Securities Asia.

But with the Federal Reserve poised to start cutting rates this month and the global economy still in reasonable shape, “we would not be surprised to see credit spreads squeeze a fraction tighter into year end” for Asian dollar bonds, he added.

At first blush, the debt spree may seem a bit counterintuitive, given that markets are widely expecting Fed rate cuts and lower borrowing costs are good for corporate issuers.

But yields could be pushed in unexpected directions if the Fed doesn’t reduce rates fast enough or if the US elections spur market volatility. That has led finance chiefs who need to borrow this year or even next year to do so before October.

The bond blitz extended even to Latin American borrowers, marking the region’s busiest day for hard-currency debt issuance this year. The Uruguayan government, and lenders BBVA Mexico SA and Banco de Credito Del Peru joined Brazilian oil giant Petrobras in selling dollar notes Tuesday.

Deal pipeline

Uber Technologies Inc. also sounded out investors for its potential first investment-grade bond sale, while Japanese car-parts maker Denso Corp. is poised to sell dollar debt on Wednesday. US high-grade bond sales are expected to reach US$125 billion this month, in line with last September’s US$124,1 billion.

Speculative-grade companies also got in on the action on Tuesday, launching more than US$17 billion of deals via the high-yield bond and leveraged loan markets, far outpacing last-year’s post-Labour Day activity.

Lenders that have been especially hungry to provide debt for new acquisitions and leveraged buyouts are finally seeing that supply hit the market. Formula 1 kicked off a $850 million leveraged loan sale to help fund its owner Liberty Media Corp.’s acquisition of MotoGP World Championship.

To John McClain, portfolio manager at Brandywine Global Investment Management, a combination of favourable borrowing costs and the need to get ahead of the US election has fuelled the issuance frenzy.

“August lulled investors into tight spreads combined with ever strong demand for credit,” he said.

“Issuers can borrow at rates we haven’t seen in a couple of years.” — Bloomberg

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