To delve into the state of debt capital markets, S&P Global Market Intelligence and Global Capital hosted a webinar “Insights and strategies: Navigating Europe’s Debt Capital Market Dynamics” on September 14, 2023, which can be viewed on demand by by clicking here.
This blog provides a summary of the webinar, covering:
- Presentation of the DCM activity in Europe based on data from Capital IQ Pro
- Round table with Atul Sodhi (Global Head of Debt Capital Markets at Crédit Agricole) and Pierre Verlé (Head of Credit at Carmignac), led by Rashmi Kumar (Capital Markets Financial Correspondent at Global Capital).
We began the presentation by recapping the unprecedented number of market-changing events we have witnessed over the past several years. Starting with the pandemic, we saw supply chain constraints, followed by the war between Russia and Ukraine, energy shocks, rising inflation and the subsequent need to increase oil rates. interest, as well as other events such as the UK mini-budget crises, a series of bank failures and UBS. -Credit Suisse shotgun merger.
All of these events had an impact on the market, including rising inflation to levels not seen in decades, which caused central banks to step in and raise interest rates. It is worth noting that rates were raised significantly after a prolonged cycle of falling interest rates and in such a short time frame. While tightening monetary policy is helping to control inflation, PMI data shows a contraction in economic growth in major European economies in recent months.
Looking at DCM activity in EMEA, we can see that economic uncertainty and high borrowing costs have dampened issuance in EMEA. Within the EMEA region, the Middle East and Africa were particularly affected, with the second quarter of 2022 seeing the lowest emissions volume since 2018.
In Europe, the financial sector accounted for 70% of the total trading volume since 2018, which has seen a decline in issuance in recent quarters, dampening the overall issuance volume in Europe. The first quarter of 2023 saw an increase compared to previous quarters, mainly driven by DZ Bank, Landesbank Hessen-Thüringen and KfW in Germany. The real estate sector has also been hit hard, with the first quarter of 2023 seeing the lowest volume of issuance and the second quarter of 2023 seeing the lowest number of transactions. In contrast, European utilities performed strongly, with the first half of 2023 seeing 54% higher issuance volume compared to the first half of 2018. The energy transition is a major theme in the utilities sector in Europe , which requires significant capital expenditure and the need to issue debt.
We also looked at emissions at the national level, presenting data on the UK, Germany and France, which were the top three countries in terms of emissions volume since 2018. The UK saw a decline , but it was not as pronounced as other countries. Germany also experienced a sharp decline, but the last two quarters showed signs of recovery, mainly due to the high volume of issuance from DZ Bank, Landesbank Hessen-Thüringen and KfW. France, on the other hand, has a significantly low volume of emissions compared to pre-pandemic times.
During the webinar we also presented data on the evolution of bond issuance in the short, medium and long term. We also looked at debt levels maturing in Europe, the Middle East and Africa over the next five quarters. We ended the presentation by presenting data collected by our News and Research team on green bond issuance, which shows that Europe is leading the pack in terms of issuance volume, which is likely to accelerate again due to the favorable environment in Europe.
After the presentation, we moved to a round table with Atul Sodhi (Global Head of Debt Capital Markets at Crédit Agricole) and Pierre Verle (Head of Credit at Carmignac), led by Rashmi Kumar (Capital Markets Financial Correspondent at Global Capital). Despite a difficult environment, credit markets are functioning very well – a view shared by Sodhi and Verlé. Sodhi mentioned that in anticipation of headwinds such as inflation, interest rates and slowing economy, many companies have already financed or advanced funds to withstand the tougher times ahead and eliminate the risks. And even though the transmitters slowed down to see how it all happened, Pierre said that “not issuing means taking a position on rates, which is not the job (of the issuer) and that rates could be higher or lower” and therefore the issuers return to the market.
The roundtable also discussed the real estate market, which has been affected by a combination of factors such as the impact on office spaces of working from home and changing behavior in retail and in brick-and-mortar stores. To achieve better returns due to the low yield environment of the past, many investors have turned their attention to real estate. But with the shift to a higher yield environment, the investor base shifts as those investors leave, as not only is real estate affected by rising interest rates, but asset values are also falling. This has an impact on emissions from the real estate sector, in addition to the difficult operating environment.
Rashmi also steered the discussion towards the Additional Tier 1 market, which was impacted due to Credit Suisse Additional Tier 1 being wiped out. Sodhi and Verlé share the view that although the impact of the wipeout was felt in the days immediately following it, markets have recovered since then. Sodhi said investors are still skeptical, but there are upcoming deadlines on the issuer side as well as refinancing needs and issuers will return to the market. Pierre also reminded that such instruments are inherently risky, which is why the returns are high, but otherwise work as expected.
In the final part of the discussion, Rashmi asked Sodhi and Verlé for their views on ESG. Verlé stressed that we should not limit ourselves to engaging with the best companies, but also focus on companies operating in “controversial” sectors. This will result in a significant impact by changing the behavior of these companies through the funding/incentives offered as a result of improved ESG compliance. He also mentioned that investors consider ESG an important topic because not considering it can lead to taking higher credit risk. Highlighting the need for entities to embed ESG culture, Sodhi said that “Almost no conversation with issuers about market access is complete without how they will answer investors’ questions about sustainability.”
Of course, many other discussions took place during the webinar. If you want to get all the information such as the increase in covered bonds, the renewed interest in carry and many more, you can watch the webinar by clicking on by clicking here. If you would like details about Capital IQ Pro and how it can help you, whether you are a banker or a DCM investor, please Click here.