S&P: $6.6tn new bond issuance expected to 2018

Non-financial corporates are expected to seek $6.6 trillion in new bonds and other debt securities to support growth over the next five years to 2018, Standard & Poor’s said on Tuesday.

The figures follow a report from the rating agency the previous day which projected that corporates globally would seek $60 trillion in financing during the same period, an increase on the estimated $53 trillion last year, for the five years to 2017.

Asia, Europe, Latin America and North America are expected to seek $21.7 trillion debt finance to support growth, excluding refinancing, the agency said.

In the report titled, “Credit Shift: Standard & Poor’s expects $6.6 trillion in new corporate bond issuance over the next five years,” S&P’s research suggests that since the recession, corporates globally are turning the debt capital markets to obtain financing.

“Except for Japan, the stock of debt security financing was between one-quarter and one-half as much in percentage terms in 2013 compared with five years before. Corporate borrowers tapped the debt markets to such an extent because of yield-seeking investor demand contributing to lucrative credit terms, combined with constrained bank loan supply,” the report reads.

Breaking down by region, the US is expected to be the largest group of nonfinancial corporates to raise new bonds over the next five years with a projected $2.5 trillion out of total debt demand of $13 to $14 trillion. In Europe, they are forecast to seek $1.5 trillion new bonds out of $11.6 trillion to $12 trillion. And in China, they could look for $1.3 trillion of new bonds out of $18 trillion to $20 trillion in financing. 

In terms of bank disintermediation, S&P’s analysts do not expect that banks will give up as much ground in corporate debt financing over the medium term, as they did in recent years.

In fact, S&P envisions commercial banks in the US making a comeback. However, overall and in Europe in particular, S&P still projects that the banks' market share of debt financing will be eroded further, as borrowers seeking debt financing outrun their efforts to catch-up.

“The equity challenge facing eurozone banks, low capital markets funding costs, and the desire to diversify funding sources encourages further bank disintermediation,” S&P analyst Paul Watters said.