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Corporate fundraising dries up as investors flee in fear
Corporate fundraising has come to a screeching halt in a sharp reversal from last year's brisk debt and stock sales as the new coronavirus wreaks havoc on business and sends investors fleeing to safe assets.
Global corporate bond issuances in January and February fell 6% on the year to $364 billion as of Thursday, according to Dealogic. This is in stark contrast to 2019 when a favorable fundraising environment pushed up offerings to a record $2.5 trillion. The sudden slowdown is particularly pronounced in Asia where bond floats dropped about 30% over the two months.
Debt offerings by Chinese companies plunged 34% to $59.4 billion, with the decline especially significant for instruments denominated in such foreign currencies as the dollar and euro, which are marketed for foreign investors. Semiconductor Manufacturing International Corp. was among the two Chinese companies that issued bonds in February, according to Refinitiv, compared with eight a year earlier.
Yuan-denominated bonds, targeting mainly domestic investors, fell more than 30% in the first two months of the year. Bonds floated by companies in Asia, excluding China and Japan, plunged 40% or so. Initial public offerings have also taken a hit. In Hong Kong, as just two companies went public in February, down from 25 in January. Hong Kong's Daikiya Group Holdings, which operates Japanese restaurants in the territory, last month canceled its planned listing citing volatile market conditions. Chinese internet search giant Baidu and e-commerce player JD.com could also delay listing in Hong Kong. Investors have grown more risk-averse. "It is inevitable that corporate earnings will worsen due to the novel coronavirus," an official at Chinese brokerage Guodu Securities said. Some companies that have suspended operations face a serious cash crunch. Risk premiums – the gap between yields on bonds issued by companies with low credit ratings and standard interest rates – have reached a roughly one-year high.
The slowdown in business activity is also weighing on corporations. An official at an investment bank that helps companies go public in Hong Kong complained of difficulties because many people cannot leave mainland China. Some companies planning IPOs have had to cancel events for prospective investors.
European and American businesses also have started running into difficulties raising funds.
Dutch resource exploration company Fugro on Friday canceled a 500 million euro ($551 million) bond offering over "adverse market conditions."
Resource prices had plunged in global markets over virus fears. In the U.S., just one company went public last week, according to IHS Markit. And speculation is afoot that Airbnb will delay its IPO, expected to be the largest of 2020. Investors are concerned that Airbnb's earnings will worsen, partly because of its move to suspend room bookings in Beijing.
The Chinese government has asked banks to help businesses secure funds. Bank lending to fight the coronavirus and resume production had surpassed 1 trillion yuan ($143 billion) as of the end of February, according to Chinese regulators.
Prolonged turmoil in the corporate bond market may exacerbate the global economic slowdown by fueling a vicious circle, with pinched corporate earnings exacerbating a credit crunch.
https://asia.nikkei.com/Spotlight/Coronavirus/Corporate-fundraising-dries-up-as-investors-flee-in-fear
China’s Vulnerable Markets Face Deluge of New Shares, Bonds
China’s cracking stock market recovery may soon face a real test: a flood of share sales and corporate-bond issuance as firms rush to make the most of favorable policies.
The number of mainland-listed companies that announced plans in February to sell additional shares was the highest since April 2016 at 40, according to Bloomberg-compiled data. CICC analysts predict as many as 30% of firms may plan non-public stock sales the next year, which would exceed the level in 2015, when a stock bubble formed and burst. Meanwhile, the value of onshore corporate debt issued by Chinese borrowers last month more than doubled year-ago levels.
While Chinese regulators expect greater corporate access to financing to help cushion the coronavirus impact on an economy that was already slowing, a spike in equity and bond supply is likely to siphon off cash from existing securities.
The resilience of Chinese financial assets last month was built on little more than optimism about government liquidity, but showed signs of falling apart last week with surging volatility amid a global stock rout. Yet while the Shanghai Composite Index had its worst week in 10 months, some stock benchmarks globally had their worst in 10 years or more. Last month, China’s central bank vowed to guide borrowing costs lower, and the country’s securities regulator significantly relaxed the grip on public companies’ follow-on stock offerings. They’re among myriad government efforts to bolster economic growth amid persisting production hiccups due to the virus outbreak.
Among key changes to the rules on selling additional equity, the China Securities Regulatory Commission shortened by half the lock-up period for shares placed privately and allowed companies to provide bigger discount to lure investors. Also, firms on the small-cap ChiNext no longer have to be profitable for two straight years before being qualified to hold non-public stock offerings.
Most of the firms announcing equity-sale plans in February were cash-strapped, not-state-owned entities. “The private sector has been suffering from severe funding crunch in the past several years” due to the government’s deleveraging campaign, said Li Changmin, managing director at Snowball Wealth in Guangzhou. “So nearly all companies in the private sector are likely in demand to raise money.”
One firm not low on cash but still announcing a stock-sale plan last week was profitable Chinese battery giant Contemporary Amperex Technology Co., a supplier of Tesla Inc. CATL is looking to raise as much as 20 billion yuan in a private share placement to fund research and expansion efforts. Its stock fell 11% in the two days following the announcement, cutting 2020’s gain to 28%. Policy makers will have to tread a fine line between meeting the financing needs of companies, particularly small businesses, and preventing a stock market rout as the coronavirus’ domestic economic impact becomes clearer. The Shanghai Composite fell 12% in 2016, the most in five years and among the world’s worst performers, as a record 1.1 trillion yuan of additional shares was sold. Authorities clamped down on such offerings, and just 135 billion yuan was issued last year.
https://www.bloomberg.com//news/articles/2020-03-01/china-s-vulnerable-markets-face-deluge-of-new-shares-bonds
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