Access liquidity pushes capital market frenzy

Amid ever-increasing liquidity availability in global markets, companies have been raising capital through debt or corporate bonds. Companies have raised over $400 billion in the first three weeks of 2021 as stimulus packages from governments and central banks have led to very favorable conditions for borrowers, reports the Financial Times.

Historically-low interest rates have also prompted investors to put their money into the capital market for better returns. A post-COVID expectation of better performance, buoyed by prospects of coronavirus vaccines has also played a part in feeding the capital market frenzy.

The global bond and equity fundraising spree is the biggest in the last two decades, a Financial Times analysis of Refinitiv data shows. Companies have raised $337 billion in debt markets in the year to January 22 and a record $64 billion through IPOs and secondary equity offerings.

The advent of the new variant and resurgence of the virus in the winters has not fazed the companies from raising capital, taking advantage of record low and stable interest rates and rallying stock prices.

global market liquidity

“The only thing that matters to markets is global fiscal and monetary policy,” said John McClain, portfolio manager at Diamond Hill Capital Management. “Markets are priced as though coronavirus doesn’t matter anymore.”  

Another route adopted by corporates to raise easy funding is through SPAC or special purpose acquisition company (SPAC). It is a “blank check” shell corporation designed to take companies public without going through the traditional IPO process.

One of the biggest IPO listings so far is Israeli mobile games company Playtika, which raised $2.2 billion. Warren Buffett-backed Chinese electric vehicle company BYD’s $3.9 billion share sale last week made it January’s biggest equity market transaction. Some other IPOs in the pipeline are; dating app Bumble and online card retailer Moonpig.

Contrary to expectations of low investments during the pandemic, the easy conditions have supported a rally in equity markets. Many of America’s large technology and healthcare companies have doubled in value since March. 

What has added to the positive highs is the trillion-dollar stimulus package offered by the US government. Jeff Thomas, head of western US listings and capital markets at Nasdaq, says, “When you put all that capital into the system, it’s got to go somewhere.”

He added. “We saw a lot of companies saying ‘look, let’s take advantage of the valuations in the public markets to go raise capital there.’” 

Asia is witnessing a similar rally, especially in healthcare and technology companies. “This has been happening for a couple of quarters now because China was first out of the gates from a Covid recovery perspective,” said Udhay Furtado, co-head of Asia equity capital markets at Citigroup. “There are clearly investment tailwinds for growth companies who have been proven resilient through Covid,” said Alex Watkins, co-head of EMEA equity capital markets at JPMorgan. “If you can trade well through this period you can trade well through most reasonable periods.” 

In Asia too, corporate bond markets have become active recently. Companies are issuing debt for future M&A’s amid uncertain market conditions. Investors with easy capital access are parking their money in corporate bonds in hopes of good future returns.

Central Bank actions across the globe to help corporates and businesses out of the slump with cheap borrowing rates have stoked the rallies.

Global high-yield bond issuance for the first three weeks of January hit a historic high for the period of $49.8 billion, according to Refinitiv data. 

Companies are using the tailwinds to fund debts and pay huge dividends to their investors. Junk-rated building material company US LBM issued a $400 million bond to fund a payout to its private equity owner Bain Capital, people familiar with the matter said. In Europe, Swedish alarms company Verisure raised €2.5 billion worth of high-yield bonds and paid a €1.6 billion dividend to its buyout owner Hellman & Friedman, as well as other shareholders. 

In the SPACS space, 61 companies have listed so far in 2021, raising $16.9 billion.

According to a fund manager, investors are buying low-rated companies for returns despite the bleak pandemic backdrop. “The sense and feeling is just sheer nervousness that surrounds the market at these levels.”

Be what it may, corporates and investors are both making hay while the sun shines, pandemic and no pandemic.

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Christy Gren
Christy Gren is an Industry Specialist Reporter at Industry Leaders Magazine she enjoys writing about Unicorns, Silicon Valley, Startups, Business Leaders and Innovators. Her articles provide an insight about the Power Players in the field of Technology, Auto, Manufacturing, and F&B.

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