European chief financial officers are issuing more debt as they brace for market volatility ahead of Brexit and changes coming from the European Central Bank (ECB), The Wall Street Journal (WSJ) said Wednesday (Oct. 31).
The central bank is readying to phase out its quantitative-easing program as it pulls back its monetary stimulus policies. The ECB is also expected to raise rates next year, forcing CFOs to lock in lower interest rates with new debt or refinancing, reports noted.
“Companies have had a long window of access to cheap funding,” said Moody’s Investor Service SVP for Credit Strategy William Coley in an interview with the WSJ. “When companies can access debt at 2 percent, 3 percent and 4 percent, that’s still low compared with historic conditions.”
Corporate finance rates have risen in Europe this year, though they are significantly lower than rates in the U.S., and remain comparatively low after the ECB introduced negative interest rates in 2014.
Data from Dealogic said European corporates issued $91.6 billion worth of bonds denominated in euros during the third quarter of this year — a 15 percent increase from Q3 2017. Dealogic also noted that about $37.4 billion worth of corporate debt is set to mature before 2019, with nearly $247 billion due next year.
According to reports, supermarket conglomerate Tesco recently sold more than $849 million in debt, marking its first euro bond issuance in four years. Building materials manufacturer Compagnie de Saint-Gobain also sold $1.13 billion worth of corporate bonds last month to replace its maturing debt, reports added.
Brexit has fueled CFOs’ debt issuance acceleration, analysts said, with Barclays Chief European Economist Antonio Garcia Pascual noting that corporates are growing increasingly concerned about “chopping conditions” as a result.
“Pre-funding and taking advantage of low rates makes very good sense,” he told the publication.
CFOs’ reaction to Brexit has been delayed, as analysts suggested last year that their financial strategies had remained unchanged up until now. Thomson Reuters research found a “muted response” from European CFOs, “not the knee-jerk reaction that some had expected,” said Laurence Kiddle, the firm’s EMEA tax and accounting managing director, at the time.