Global borrowers gorging on cheap euro bonds transform market

[LONDON] Never have so many international companies borrowed so much for so long in Europe and the continent's bond market may never be the same.

The region, which up until now had catered primarily to domestic borrowers, became a prime target for foreign firms looking to raise funds this year, witnessing a record 157 billion euros of bonds. Banks and investors are now devoting more resources to meet the demand.

Europe now lures globally recognized firms such as Time Warner Inc as well as others scarcely known in the region, and from as far as China and Brazil. They're attracted by borrowing costs suppressed by European Central Bank president Mario Draghi's unprecedented 1.1 trillion-euro stimulus program.

"The euro market has developed a depth and maturity," said Peter Schikaneder, head of origination for international corporates at Commerzbank AG in London. "Certain things are achievable in the market that we didn't expect were before."

US issuers have led the international charge, selling 78 billion euros, already eclipsing the 69 billion euros sold by American firms in all of 2014. They've also been key in extending maturities, ensuring the globalization of the market for years after the ECB's measures which are due to end next year.

Berkshire Hathaway Inc and Oreo-cookie maker Mondelez International Inc were among firms that raised a record 52 billion euros from bonds due during or after 2025, according to data compiled by Bloomberg.

"There has never been so much cross-currency funding," Marc Tempelman, co-head of debt capital markets and corporate banking at Bank of America Merrill Lynch said. "Companies are diversifying their sources of financing to far-reaching markets and that is a theme that we will continue to see."

To help cater for the deluge, Bank of America has boosted its corporate banking and debt capital markets teams since May. Commerzbank transferred an employee from Hong Kong to New York the same month and hired a syndicate banker in New York last year, Mr Schikaneder said.

Wells Fargo & Co in March was seeking to set up a team in London to arrange and trade speculative-grade securities, according to people familiar with the matter. Banco Santander SA, Spain's biggest bank, created a Madrid-based team to help manage junk bond sales.

Investors are also adapting to market changes. Union Investment expanded its corporate bond team with two hires and TwentyFour Asset Management is planning to create two new positions, according to Chris Bowie, a portfolio manager at the London-based company.

"We're seeing that for US or global companies, the domicile matters less and less," said Jason Brady, a portfolio manager at Thornburg Investment Management, which oversees about US$60 billion. The Santa Fe, New Mexico-based company added Rebecca Cummins to its global fixed-income team in June, he said.

Companies that borrow frequently in the US, such as Coca- Cola Co and Eli Lilly & Co, were lured to Europe by borrowing costs that fell to a record 0.85 per cent in March and remain within half a percentage point of the low, Bank of America Merrill Lynch indexes show. The relative advantage of borrowing in euros will probably increase, the lender said in a July 23 report.

That may further broaden the market after smaller borrowers Mohawk Industries Inc, a flooring-maker from Georgia, joined companies from as far afield as China, such as Beijing Enterprises Holdings Ltd in holding debut euro sales. Australia's BHP Billiton Ltd and Brazil's Votorantim Cimentos SA were among international borrowers who returned to the market.

"The euro market has become more relevant globally over the last six months," said Vis Raghavan, head of banking and deputy chief executive officer of the corporate bank and investment at JPMorgan Chase & Co. "It's shown companies they can do large sizes in euros and that the US market doesn't always have to be the focus for corporates looking for sizable financings."

BLOOMBERG