Firms turning to bond market to raise money

Marion Dakers
LARGE companies are turning to the bond market in growing numbers as more traditional sources of cash remain in the doldrums, research out today claims.

In the first eight months of the year, non-financial firms raised $75bn (£48bn) in corporate bonds, compared to £35bn raised in syndicated loans, according to TheCityUK, an interest group for financial services.

“The drop in bond sales by UK banks and other financial institutions, and healthy overall demand for UK bonds, opens up an opportunity for non-financial UK companies to fill,” the researchers said.

Large caps including Tesco, GSK and National Grid have tapped the bond market this year.

And yesterday property group St Modwen demonstrated that mid-cap firms can raise money in this way by launching its first retail bond to raise between £50m and £100m.

However, the corporate debt market is still dwarfed by the government and international bond markets that operate in the UK, making up less than one per cent of the £3,500bn market. And some fund managers have called the top of the market for corporate debt, warning that the investor hunt for high yields is becoming overcrowded.

“While there is no guarantee of future performance, returns from bonds have historically become negative when bond markets returns are as high and yields as low as they currently are,” said Alan Higgins, UK chief investment officer at Coutts, yesterday. “The greatest risk to bonds is that investors become more confident about the outlook for equities.”