Al-Jasser: work is underway to restructure and develop aviation infrastructure    Diriyah to host third IMFC Deputies meeting under Saudi chairmanship    15,135 decisions taken to penalize Saudis and expats for violations    Saudi-European Parliamentary Friendship Committee discusses cooperation during Strasbourg visit    Saudi stock market loses half a trillion riyals, with Aramco's losses amounting to SR340 billion Tariff turmoil rattles Gulf markets    KAU to host Digital Communication Conference in Jeddah from April 29 to May 1    TGA: Riyadh tops with 45% of 290 million orders delivered in 2024    Aja and Salma mountains draw nature lovers to Hail's rugged landscapes    US revokes all visas for South Sudanese nationals over deportation dispute    Death toll from Myanmar earthquake rises to 3,471    Macron to hold Gaza summit with Egypt and Jordan in Cairo    Benzema rescues Al Ittihad with stoppage-time equalizer in thrilling Jeddah Derby    Al Qadsiah and Al Ettifaq share spoils in tense Eastern Derby stalemate    Moussa Diaby praises Al Ittihad's resilience after Jeddah Derby draw "When you can't win, you take a point"    Saudi assistant referee Iman Al Madani joins AFC elite list for 2025    Riyadh Art Week launches with over 50 galleries showcasing global artistic dialogue    Turki Al-Sheikh announces five new Saudi film projects to be produced in Riyadh    Saudi Ministry of Education to showcase innovations at 2025 Geneva International Exhibition    Ed Sheeran weaves Persian music into new song, Azizam    Veteran Bollywood actor Manoj Kumar dies at 87    Screen time in bed linked to insomnia, study finds    Bollywood actress vindicated over boyfriend's death after media hounding    Grand Mufti rules against posting prayers and preaching in mosques on social media    King Salman prays for peace and stability for Palestinians in Ramadan message King reaffirms Saudi Arabia's commitment to serving the Two Holy Mosques and pilgrims    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Banks to supersede firms as key borrowers in 2010
Published in The Saudi Gazette on 09 - 01 - 2010

Financial institutions will take the spotlight from corporates as the biggest and most important borrowers in 2010, with high-grade companies' needs set to fall although high-yield and M&A financings could be prominent.
Global corporate bond sales of $1.02 trillion were the biggest ever and a 42 percent jump on 2008, while high yield issuance reached a three-year high at $153 billion.
This was facilitated by impressive investor flows into fixed income, attractive corporate yields compared to risk-free assets and rosier outlooks for economic activity. The momentum provided by those trends is now abating and attention is now returning to the financial sector.
“Clearly a large challenge awaits the financials (banks) market. That includes a lot of refinancing to be done, considerable uncertainty on regulation and against a backdrop of 1 trillion euro plus redemptions over the next few years, just in the euro zone,” said Ryan O'Grady, head of EMEA fixed income syndicate at JP Morgan.
For the past 12 months, banks have been supported either by state backing for their bond sales or directly via cheap funding central bank liquidity schemes. These are being formally withdrawn or discreetly discouraged as policy makers seek to make banks independent.
Since October 2008 some $845 billion has been raised under government guaranteed bond schemes in 16 countries. This of course does not include central bank repo facilities.
Banks might be trying to shrink their balance sheets but political pressure, and long-standing commitments made during the credit bull market, are making that difficult.
“I think volumes will increase dramatically, although it's a big question how it will be all be absorbed. A lot of banks had financing through the government guaranteed market and that has largely come to an end. We think there is something like 500 billion euros of European bank supply to come into the market in 2010,” said Christopher Tuffey, head of European debt capital markets at Credit Suisse.
It is not just a question of sizeable supply but also of risk appetite and how investor demand is structured. Banks have been over-reliant on short-term, floating rate bonds. They need to raise longer-term finance which could be dominated by fixed rate investors.
Furthermore, options such as securitization and covered bond markets are fragile or not a viable option for many borrowers.
“It's worrying when you think about how limited capital markets access is for the second and third tier banks. The US banking system has hundreds of mid-cap banks that don't have decent access right now,” said O'Grady.
Companies sold bonds at an unsustainable rate in 2009, with issuance of 367 billion in the first quarter alone; equal to the first half volumes of 2008 and greater whole of activity seen any year prior to 2006 - save the telco-driven boom year of 2001.
No one is expecting a rerun of 2009 when US corporate issuance (excluding financials) rose by 30 percent to $345 billion.
“In the US it'll be a lot lower than what we saw this year, it could be two thirds or even half of that,” said O'Grady. He said that cash, as a proportion of corporations' balance sheets is at the highest level since the 1950s.
In other words, in 2010, US corporations are unlikely to be as preoccupied with raising cash as they were this year.
“M&A will be one of the factors driving debt issuance volumes in 2010, the largest bond deals have historically been driven by M&A, as Pfizer and Roche were this year,” said Jim Glascott, head of global debt capital markets at Barclays Capital.
There will not be a substantial drop from the strong pace of European corporate activity this year if the switch from bank to bond financing continues to be a strong theme for European high grade companies.
Bankers think it will likely continue down into the high yield sector.
“In European investment grade companies, some 75 percent of their debt is in bank loans and 25 percent in bonds, whereas the picture is reversed in the US,” said Glascott.
But bankers such as Tuffey suggest global corporate investment grade volumes will be lower next year, unless there is a substantial amount of M&A.
“I do think the high yield and the unrated markets will be much bigger, which will be helped by greater investor appetite,” said Tuffey.
Joe McGrath, head of global leveraged finance at Barclays Capital, said that the leveraged and high yield markets were still very well supported having shaken off the noise in the market over Dubai.
McGrath said that “For 2010 we are very constructive with an expected increase in M&A activity from acquisition financing for corporations and financial sponsors.


Clic here to read the story from its source.