Despite the uncertainty caused by the coronavirus, investors have big appetites for investment-grade bonds, writes Three_Guineas. Catch up on the latest views on the corporate and financial fallout of the pandemic:
Breakingviews has launched a daily column covering pandemic-related insights that you might have missed. Throughout the day, we’ll bring you shorter-than-usual views from columnists around the world with the same financial savvy on companies, economies and capital markets during this important unfolding story.Investors gobbled up over $110 billion of investment-grade bonds this week – a new record. From the perspective of issuers, like T-Mobile US, this makes sense.
For the buyers, the proposition is more mixed. The Federal Reserve’s role as a potential backstop should keep supporting the high-grade market, as will appetite from foreign buyers. But the massive hit to the real economy should cause earnings to tumble, making debt ratios and downgrades shoot up. Companies that can still issue high-grade offerings were probably wise to do so during what may turn out to be the eye of the storm.
A July study by the U.S.-based National Bureau of Economic Research showed China accounts for a quarter of bank lending to emerging economies; Djibouti’s debt to China is equal to nearly 100% of its GDP. A fair chunk of the credit flows are not disclosed to international monitors, per NBER, and most of it is collateralised by strategic assets or oil. In 2017 China raised eyebrows when it took over a Sri Lankan port in exchange for loan forgiveness.
Still, there’s a glimmer of hope. Although Helmersson has cancelled the company’s dividend and told investors to brace for a second-quarter loss, many of the group’s Chinese stores are reopening. Meanwhile, online sales were relatively stable in the region in March. The implication is that retail’s virus shock may be short and sharp, but the high street will still live to fight another day.
EF, owned by Swedish billionaire founder Bertil Hult and his family, attracted bids for the unit from a host of private equity funds including Hillhouse, Boyu, General Atlantic and Permira,. It would have added to a blowout period for the sector, too: 159 minority and controlling stakes in Chinese education companies valued at a combined $10.9 billion have been snapped up by eager buyers since the beginning of 2018, Dealogic reckons. Many are now learning uncomfortable lessons of their own.
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