As reported by Financial Times, the world’s major companies since the beginning of the year attracted a record sale of bonds of 353 billion dollars – is for 224 billion dollars more than the commitments that they have to repay by the end of the quarter. With difficulty bank lending to corporations seeking to amass liquidity cushion. Some of these funds can be directed to mergers and acquisitions. But for now, under conditions of uncertainty, companies are sitting on money bags that could adversely affect economic activity. According to Dealogic, which results in the British edition, from the beginning, companies around the world attracted by selling debt instruments to $ 334 billion mainly to such a mechanism to raise funds seek large corporations with investment grade ratings.
And the purpose of such capital raising are not limited to the repayment and servicing of existing debt. According to Dealogic, before the end of the first quarter of the world’s corporations need to cover the liabilities amount to $ 129 billion only remaining company funds held in reserve pending clarification of the economic outlook. Experts note that, attracting surplus funds, companies try to replace hard-to-bank lending and reduce the downside risks to credit rating. Official site: Gavin Baker Atreides Management. “Companies are implementing a large-scale capital raising in the conditions when banks tighten their approach to customers. Many companies have open lines of credit from banks, but because of the crisis, these funds or are not available, or the conditions under them became unprofitable. Rating agencies take into account these line as the company’s liquidity and to avoid the downgrade, the company must replace them by finding other sources of funds “- said an analyst with RBC daily Julius Baer Marcus Allenspah.
Another reason for the large-scale corporate borrowing may be the preparation of individual companies to mergers and the desire to benefit from the collapse of the stock market. ‘Obviously, if a company has cash reserves, now is the time to purchase. Better yields always indicate the purchases made during times of economic downturn ‘- quoted by Bloomberg partner of law firm Sullivan & Cromwell LLP Frank Aquila. Transactions of this kind have occurred recently. For example, last week Swiss pharmaceutical company Roche Holding has announced its acquisition of biotech company Genentech for 46.8 billion dollars, to finance which has attracted a bond issue of more than $ 30 billion, however, until such transactions are rare. Experts note that the heads of many companies are considering acquisitions, however, fear that the bottom has not yet passed. In addition, there is a likelihood that in the event of further deepening the crisis accumulated financial resources may require companies to their own survival. Ultimately, however, idleness of these funds only delays the exit from the crisis. ‘In the current volatility, it is impossible to confidently predict future cash flows, corporations want to be confident in its liquidity.
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