A weekly podcast from GlobalCapital discussing the most interesting stories from the world’s capital markets
Omicron hits leveraged finance market
A fertile hunting ground for signs of major shocks affecting capital markets is invariably the parts where the worst rated credits are — where risk is deemed to be highest. That typically means the emerging markets and, as was our subject this week, the leveraged finance market where the most indebted companies raise debt capital.
The recently detected Omicron variant of the coronavirus is already having an effect on the latter. Three huge financing deals that have been in the pipeline for months are now quite likely to be shoved into next year because investor confidence has ebbed away.
Typically, banks with huge leveraged finance debt positions to sell don’t like holding on to them over Christmas, but that now looks like it will be the case. On the podcast this week, we examine how they have ended up in this situation and what the consequences are likely to be.
Meanwhile, we also discuss credit investment firm Alcentra, which has been put up for sale by its owner, BNY Mellon.
Unorthodox emerging markets from Bitcoin to the Bosphorus
Turkey has once again defied monetary policy orthodoxy by cutting interest rates in a bid to tackle inflation, which is running at around 20%. The results on the country’s currency, the lira, have not been pretty and it has plummeted in value. But what does that mean for the country’s access to capital markets? This is, after all, a sovereign borrower with a big presence in bond markets and the country’s banks and companies also rely on international funding.
We discuss why the reaction to the interest rate cut in the bond market was muted but highlight the risks that loom large for Turkey’s capital markets.
Meanwhile, the self-styled “CEO of El Salvador — its president Nayib Bukele — is attempting what might generously be called a novel form of sovereign financing. He wants to issue a $1bn bond that pays out based on the performance of Bitcoin. And he wants to use some of the proceeds to build a new city… called Bitcoin City… at the foot of a volcano…
We deliberate over whether this is a good deal for investors or not (spoiler alert: we don’t think it is) and what Bukele might be up to.
We also discuss the latest findings from our survey about life in the capital markets after Covid and how it has affected banks’ attitudes to diversity.
The future of work in capital markets
The way people did business and went about their work in the capital markets changed almost overnight in early 2020 with the advent of the coronavirus pandemic — and in ways many would have previously thought impossible.
Gone were the gruelling roadshows and short haul business trips as deal marketing went online. Gone too was the need to be present in the office or on the trading floor. Compliance and technological worries were swiftly overcome and record volumes of capital markets business were done despite the chaos that the pandemic brought.
Now, as working conditions normalise, it is time for the industry to assess what it will keep from the pandemic experience and what it has missed the most from before. Many bankers have long since resumed normal office working but many expect — and are being given — a greater degree of flexibility. But how much flexibility is the right amount?
Ultimately, capital markets are about relationships. How will building and managing those change now there is a clear expectation that there will be less business travel in the future?
We discuss the findings of the survey and what will the lasting changes be to working life in the capital markets.
How to pay for the developing world’s fight against climate change
If the COP 26 conference on climate, which concludes this week in Glasgow, has had a consistent theme, it has been trying to agree how much funding the developing world needs from the rich one to combat the most severe consequences of climate change, and how to make sure that funding gets there.
In this week’s podcast we examine some of the smart and innovative ways capital markets can help bring about climate adaptation in the developing world, and how institutions like development banks can help to mobilise the billions — perhaps trillions — of dollars necessary to prevent a global catastrophe from both public and private purses.
Like some kind of location scout for a Bond film, we start in the coral reefs of Belize and move to Washington DC’s corridors of global power before considering which other exotic but threatened countries can benefit from global capital flows looking to have a positive impact on the developing world and climate change.
COP 26 — a GC Podcast special
It’s half time in Glasgow at the COP 26 conference where the world has gathered to thrash out the next steps in the fight against climate change. GlobalCapital, which has been reporting from the front lines of ESG finance since the concept’s inception, has boots on the ground at the event (and not on the other side of Scotland, like CNN) while we have also been involved in a special collaborative project with our sister publications in the Euromoney Institutional Investor stable to bring you — completely free — the most important news, analysis and opinion from the capital markets; banking and finance; and the legal, insurance and tax sectors among others around the latest developments in Glasgow and from the wider green transition (go to euromoney.com/COP26 for more).
On the podcast this week, we discuss the GFanz initiative — Mark Carney’s $130tr plan to fund the green transition — and what it can and can’t achieve. We examine the UK’s plans to force companies to consider their path to net zero and we look into one of the biggest problems facing COP 26: funding the developing world through the climate crisis.
Finally, we take a look at what the second week of COP 26 holds in store.
Has the IPO market become an unfair place?
With record amounts of issuance in the equity capital markets, dealers and issuers have become increasingly reliant upon cornerstone investors to ensure their deals get done.
A cornerstone investor — one that commits to a large chunk of stock in an IPO before book building begins in exchange for a full allocation of shares — should bring several benefits to a new listing by removing some of the underwriting risk, encouraging other investors to join the deal and in some cases helping the stock to perform once it has been priced.
But many market participants have complained that you can have too much of a good thing. Plenty of IPOs are being cancelled, postponed or are bombing in the secondary market regardless of cornerstone participation. Yet that is causing bookrunners to sign up ever more cornerstones in deals where they previously would not have been required. This, the critics say, prevents true price discovery, makes stocks illiquid and is inherently unfair, among other bellyaches.
On this week’s podcast, we discuss the extent of the problem, what can be done about it and what sort of deals need and could do without cornerstone buyers.