Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, May 15, 2008

Time to dust off the IR debt strategy?

Corporate bonds are going through something of a revival at the moment.

Prior to the credit crunch, UK corporate bonds had looked unappealing. Interest rates were rising, making cash a more attractive proposition, while spreads were exceptionally tight. Investors were not receiving a premium for the extra risk inherent in even the highest quality corporate bonds.

With the collapse of cheap credit, banks and hedge funds raised funds by selling their corporate bonds, often at low prices. However this sell off seems to have stopped and new corporate bonds are coming to the market - notably this week's record $9bn issue from GSK - and although they are issued on wide spreads, those spreads are tightening, reflecting a return of buyers.

As a consequence asset allocation at a growing number of fund managers is growing on the debt side.

Meanwhile, as discussed in the blog earlier, ratings agencies have been under pressure to reveal more about their rating methodologies, and to abandon the alphabet-based rating scale for complex structured finance instruments.

While this debate is on, the demand for corporate debt is likely to continue to grow.

So what does debt IR look like? As so often it varies widely. A few issuers have specialist debt IR programmes, with debt roadshows, dedicated debt sections of their websites, and a range of debt profiled financial reporting.

Others – by observation – simply pass any enquiries from debt investors to Treasury.

However, with the success of the largest corporate debt issue, issuers with strong cash generation potential, and seeking to bolster lower valuations through share buy backs, will look at new debt issuance. And preparation in the form of a good debt IR outreach will be useful.


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