Banks won’t lend? Try a bond instead

January 30, 2013

When the banks won’t lend you money, head for the international debt markets.

Western European banks have been withdrawing funds from emerging Europe because of capital issues at home for the past few years, alarming international lenders so much that they formed the Vienna Initiative to help the region.

But those corporates that couldn’t borrow have been making use of the red-hot emerging corporate bond market instead.

Panellists speaking at the Emerging Market Traders’ Association annual corporate debt forum yesterday said emerging corporates will still rush to the debt markets this year, after record levels of issuance last year, even though the pace may be a little more subdued.

According to Polina Kurdyavko, fund manager at BlueBay Asset Management, caution in the financial sector means that:

Banks are more selective who they lend to.

They’re prepared to lend to the big energy companies like Brazil’s Petrobras or Russia’s Gazprom and also to the lesser-rated companies to whom they can charge high lending rates, Kurdyavko told the audience of emerging market specialists.

But the borrowers in the middle have been left with fewer borrowing options.

As a result, Kurdyavko said:

BB to BBBB names without bank funding – these are some of the corporates we have seen on the bond market.

Kurdyavko said she was currently overweight on BB-rated emerging corporate borrowers, while Milena Ianeva, head of EMEA corporate credit at Barclays, liked short-dated debt from BBB borrowers.

But corporate debt issuance won’t fill the bank lending gap, according to a note from David Creighton, CEO of emerging market fund manager Cordiant. He wrote:

The fall in bank lending is a major issue for the thousands of mid-cap and large companies who cannot tap the capital markets and will remain reliant on lending from international banks… Banks have also been leaning more towards shorter-term loans. A lot of businesses are finding that what is on offer isn’t a fit for their needs.

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