Corporate funding options multiplied

Allen & Overy reported that while the total value of finance, across loans, bonds and equity, provided to business globally has hit a record level, exceeding USD6 trillion for the first time in 2014, this is indicative of a structural shift rather than a return to pre-crisis normality.

The legal practice’s Corporate Funding Monitor has highlighted a fundamental change in the way in which corporates (excluding financial institutions and real estate companies) access finance. Thomson Reuters data shows the type of financial products used has altered significantly – with the value of bonds issued by businesses increasing by 70 per cent since 2007 to over USD1.50tn, despite a 10 per cent year-on-year fall in 2014.

The value of loans made globally to corporates has exceeded the pre-crisis peak of USD3.87tn, totalling USD3.93tn in 2014.  However, while loans remain the predominant source of funding for corporates globally, accounting for 63 per cent of the total, it is apparent that it is not just banks that provide them.

Research conducted by Allen & Overy during 2014 showed that, while total funding to corporates in Africa and Middle East was up nine per cent last year to USD120bn, there has been a significant increase in the use of bonds (up 33 per cent to USD20.09bn – surpassing the 2007 pre-crisis peak of USD17bn for the first time) and equity (up 83 per cent to USD17.18bn) over the past year. Funding overall in the region remains nearly 30 per cent below the 2007 pre-crisis peak of USD172.9bn. 

Bimal Desai, head of Banking for the United Arab Emirates at Allen & Overy, commented, “It is encouraging to see confidence returning to the Middle East market.  2014 proved to be the strongest year for debt financings since the financial crisis and we saw the much anticipated return of bond values come to fruition.” 

Angela Clist, head of Financial Institutions Group at Allen & Overy, commented, “Corporates have more options than ever before, and there is no ‘one-size fits all’ approach. We expect markets to continue evolving, adding new dimensions to corporates’ decision making matrix. As competition continues to increase not only in the type of products corporates choose, but locations where they source funding and the players who ultimately provide it, banks have an increasingly pivotal role to play in facilitating access to this broader and more global market.”

The Corporate Funding Monitor report is available to read on the website: http://bit.ly/1yebI7T.