As the year has come to an end we are reviewing deal making, with insight into what has made 2014 a successful year for global M&A and Capital Markets activity. Many areas in deal making have seen the strongest annual results for a number of years, including record results for high grade corporate debt offerings and Asia Pacific M&A. To find out more about why 2014 was such a successful year and understand the trends that will impact 2015, join our webcast on January 14th, 2015.
This week’s $17 billion US-dollar denominated investment grade corporate debt offering from Medtronic ranked as the largest US-dollar offering this year and pushed volume to a record $1.11 trillion for year-to-date 2014, a 7% increase compared to year-to-date 2013. For the first time since records began in 1980, the average deal size for US-dollar investment grade offerings has surpassed $1.0 billion for year-to-date 2014. Healthcare corporate bond offerings in the United States total $82.9 billion so far this year, a 66% increase compared to a year ago
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Among 150 real estate companies listed in China, 32 companies have borrowings that would take more than 10 years to repay at their current pace of cash generation. Construction loans, which form a major part of the borrowed funds, are typically of 3 years tenor. Today’s graphic maps out the debt to EBITDA ratio for China’s real estate companies as well as the market cap of its top developers.
US-dollar denominated investment grade corporate debt issuance reached $1.05 trillion this week, a 7% increase compared to year-to-date 2014 and surpassing all full-year records for US-marketed high grade offerings. Alibaba Group’s inaugural $8 billion multi-part offering capped off a week which saw new issues from Johnson & Johnson, Citigroup and Dominion Resources. JP Morgan, which led the Alibaba offering along with five other bookrunners, leads the year-to-date ranking of US investment grade underwriters with 13.5% market share, an increase of 0.3 market share points compared to a year ago.
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Lurking beneath Malaysia’s solid investment-grade sovereign rating is a risk posed by a $14 billion investment fund that is not even generating enough cash from operations to cover interest costs. The government says it only guarantees around 14% of the debt. It is the potential strain on Malaysia’s debt position from these contingent liabilities that raises concern.
Today’s sukuk are referred to in most writing as Islamic bonds, but in reality they could perhaps be more appropriately referred to as Islamic investment certificates, or more accurately “Trust Certificates” or “Participation Securities”. This difference is a sensitive and critical one; equity- or debt-based sukuk should not simply be referred to and governed as an alternative for conventional interest-based securities (or bonds). We do not seek to develop financial products that imitate fixed-rate conventional instruments, interest-based bonds, and floating-rate notes as understood in the Western economy, but rather to build an innovative approach to engineer classes of assets that are consistent with sharia objectives.
In this current decade the Kingdom of Saudi Arabia is witnessing exceptional economic growth stimulated by an aggressive public spending plan. This has led to huge financing requirements for both the government and private sectors. KSA also has one of the largest investor bases in the region with total assets under management exceeding $22.7 billion. The increasing requirement of long-term financing and huge local investor appetite provides an excellent opportunity to develop a vibrant Islamic debt capital market (DCM) in the country.
The Saudi sukuk market is small compared to other countries with comparable economic indicators. Though it has seen some large sukuk issues, the number of local currency issues listed on Tadawul is only seven from three issuers (SABIC, Saudi Electricity Company & Saudi Holland Bank). The size of the total outstanding sukuk is $8.1 billion. The need to have a well-developed DCM was felt more than ever during the 2008 financial crisis when bank lending to the private sector slumped to 3.6 per cent in July 2009, the lowest rate in more than six years. Despite several interventions by the Saudi Monitory Agency (SAMA), banks became very reluctant to provide long-term financing and increased their margins across the board. This left businesses with no other option except to abandon or reschedule their projects.
Further development of the sukuk market in Saudi Arabia requires proactive involvement of the government authorities in addressing some of the key issues faced by the DCM issuers and investors.
Irish bond yields dipped today after Moody’s raised the country’s rating by two notches on Friday, citing strong growth dynamics. At around 120% of GDP, Ireland still has one of the most bloated government debt burdens in the euro zone. Today’s graphic shows the long-term sovereign debt ratings for some of the world’s major economies.
Chinese companies owe just over $1 trillion in domestic bonds, of which 15.8% is coming due this year. A Reuters analysis of more than 2,600 Chinese companies found credit metrics worsening across a range of industries. Today’s graphic show short-term debt to cash for each mid and large cap company listed on the Chinese stock exchange.
US Dollar denominated investment grade corporate debt totals $236.6 billion so far in 2014, up 11% compared to a year ago and the strongest year-to-date period since records began in 1980. Non-US Issuers have raised $85.8 billion in the US investment grade debt markets this year, accounting for 37% of overall volume and an increase of 34% compared to year-to-date 2013. Companies from France, the United Kingdom and Japan account for nearly 15% of year-to-date activity.
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France’s economic picture is among the weakest of the main rich nations. Today’s graphic uses five charts to show how France has a lethal combination of high social expenditure, low average working hours, a heavy debt burden, increasing unemployment and decreasing consumer confidence. Make sure to check out the Reuters special report on how Peugeot and France ran out of gas.