China Surpasses U.S. as Largest Corporate Debt Issuer

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BrokerDealer.com/blog update courtesy of extracts from today’s NYT DealBook.

HONG KONG — China has overtaken the United States as the world’s biggest issuer of corporate debt, despite worsening cash flow at Chinese companies since the financial crisis, according to a report released Monday by Standard & Poor’s.

In a study that highlights the rising risk to the global economy posed by China’s informal shadow banking sector, Standard & Poor’s, the ratings agency, found that China’s nonfinancial companies had total outstanding bank loans and bonds worth $14.2 trillion at the end of last year, compared with $13.1 trillion in the United States. Moreover, S.&P. expects strong growth in new borrowing and the need to refinance existing debt will push China’s corporate debt levels to more than $20 trillion by the end of 2018, accounting for a third of worldwide corporate borrowing.

S.&P. estimated that one-quarter to one-third of China’s corporate debt is sourced from the country’s shadow banking sector, a murky world of nonbank lending that caters to borrowers who would otherwise struggle to secure financing.

“This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector,” the S.&P. analysts wrote in their report. They estimate China’s shadow banking sector debt at $4 trillion to $5 trillion.

China largely avoided the fallout from the 2008 global financial crisis by going on a tremendous credit binge. Officials ordered the country’s state-dominated banks to increase lending, in many cases to infrastructure or vanity projects that have since proved economically unfeasible. Local government borrowing surged, in the form of both bank loans and bonds, to about $3 trillion at the end of last June, according to an official audit released in December.

At the same time, the proliferation of shadow banking in China has helped the nation’s corporate debt balloon on an even greater scale than that of government debt or household borrowings. This raises concerns because, even as their total borrowings increase, the ability of Chinese companies to make interest payments and to repay bank loans and bond principal is declining.

The S.&P. analysts compared cash flow and leverage data on 8,500 global companies to measure credit risk during the past five years. They found that in 2009, Chinese companies were the least risky when compared with their counterparts in Europe, the United States, Latin America and the rest of Asia. By 2013, however, the credit that Chinese companies enjoyed had deteriorated, and they had become the riskiest borrowers globally.

The full article can be found at NYT DealBook.

 

Grocery Delivery Service Instacart Raises $44 Million

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BrokerDealer.com/blog update courtesy of extracts from today’s NYT DealBook.

Companies like Uber and Airbnb have prospered by allowing people to sell their services to strangers on a smartphone-powered network.

Now venture capitalists are betting that a young start-up can use that principle to achieve success in the grocery business.

Instacart, a two-year-old grocery delivery company, announced a $44 million round of financing on Monday led by Andreessen Horowitz. Three venture capital firms that previously invested in the company, Sequoia Capital, Khosla Ventures and Canaan Partners, participated in the latest round.

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The company, which is based in San Francisco, lets customers shop online from grocery stores in their area. The orders are filled by other people who have signed up to be shoppers and who receive a cut of the delivery fees. Information about a store’s inventory comes from store managers and from the shoppers. The company says it can have groceries delivered within an hour.

Jeff Jordan, a partner at Andreessen Horowitz, said he was attracted to Instacart because it was a “people marketplace.” He said the company had an advantage over other grocery delivery services, including FreshDirect, because it did not rely on warehouses, trucks or other capital-intensive infrastructure.

“Grocery is the single largest category of retail in the United States and is virtually undigitized at this point,” Mr. Jordan said in an interview. “There is an enormous opportunity if someone can figure it out.”

The founder of Instacart, Apoorva Mehta, previously worked at Amazon in the “fulfillment” division, which oversees the delivery of orders from warehouses to customers. After starting in San Francisco, Instacart has expanded to 10 cities across the country, Mr. Mehta said.

The full article can be found at NYT DealBook.

Boston Deal Firm Nears Pact to Buy Stake in Hedge Fund Titan

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Brokerdealer.com blog news extract courtesy of the Wall Street Journal.

A Boston investment firm is nearing a deal to buy a stake in hedge-fund giant D.E. Shaw Group for more than $500 million from the estate of Lehman Brothers Holdings Inc., according to a person familiar with the matter.

Affiliated Managers Group Inc. AMG +0.25% has bid for the 20% stake in a deal that would value D.E. Shaw at more than $2 billion. An agreement in principle has been reached but a final deal isn’t imminent and could still fall apart, according to people familiar with the matter.

D.E. Shaw, based in New York, manages about $32 billion and is known for its quantitative-trading strategies. Lehman Brothers, the investment bank that collapsed in 2008, paid between $750 million and $800 million for the stake in 2007, part of a wave of activity before the financial crisis by banks looking to buy their way into the hedge-fund business.

Investment groups have raised billions of dollars recently to buy minority stakes in hedge funds, prompting some in the industry to question whether the market is frothy.

The deals are a way for stakeholders to profit from hedge-funds’ management fees and performance, and buyers see more opportunity as banks have pulled back to adapt to stricter capital rules on managing capital and risk.

Hedge-fund clients don’t always like the deals, worried they are a way for managers to cash out. But managers and stake buyers say the sales are often structured to ensure that managers remain active, can help motivate employees if they creates a more attractive incentive structure and can increase the long-term odds a firm will endure beyond its founder’s involvement.

For the full story, please visit the Wall St. Journal article.

BrokerDealers & Bankers Cashing In on IPO Boom

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Below Brokerdealer.com blog news extract courtesy of FT.com

Investment banks are cashing in on a boom in global stock market listings this year amid a resurgence of initial public offerings from Europe and Asia. Worldwide IPO fees of $3.15bn for the year to date are up nearly two-thirds from the same period a year ago, according to Thomson Reuters and Freeman Consulting.

The amount garnered in the Americas has risen slightly from $1.25bn to $1.31bn. Fees from these deals in the Asia-Pacific region jumped by almost three times to $853m, and more than doubled in Europe.

IPOs have been a bright spot for banks as volatility in secondary markets vanished, putting pressure on trading revenues. The CBOE Vix equity volatility index this month fell to a seven-year low.

The listings market in the US has been strong for a few years, experiencing a pullback this spring after overheating at the start of the year. Stabilisation in southern Europe has served as a catalyst for a rebound in deals throughout the continent, while Asia has been choppy.

“When you see sovereign yields in Greece and Spain fall, it allows people to put good values on any solid European company that may want to go public,” said Dan Simkowitz, co-head of global capital markets at Morgan Stanley.

The calendar is not necessarily dominated by southern Europe, but influenced by the “healing”, he said.

The IPO revival in Asia and Europe has clipped the global market share of fees for top earning banks as those with a strong regional presence in rebounding areas, such as UBS in Asia, move up the charts.

Sam Kendall, global head of equity capital markets at UBS, said: “Investors in Asia’s market are not just buying anything. The deals have to be priced sensibly, structured properly and have a good equity story. It’s the same thing all over the world.”

In Europe, the rush to list has been led by London where smaller banks such as Zeus Capital and Numis have used strong local profiles to gain market share against much larger competitors.  For the complete story, please visit FT.com

Its a Beautiful World; Paris-based Worldline IPO

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Below Brokerdealer.com/blog news extract courtesy of FT.com and reporter Andy Sharman

Worldline, the online payments company being spun out of French multinational Atos, has launched its initial public offering at a range that values the company at up to €2.4bn, including debt.The Parisian listing is part of a plan to take advantage of the shift to digital and mobile that has increased the popularity of online payments – though cashless transactions have not caught on as rapidly as some had hoped.

Gilles Grapinet, Worldline chief executive, said the IPO came at “a unique moment of opportunity for growth” with the convergence of three trends – “the digital and mobile revolution, the changes in the regulatory framework for the European payments sector and the shift in strategy by many banks following the financial crisis”.

Specifically, he was referring to banks’ willingness to invest in technology that lowers the costs of transactions.
Worldline, which has revenues of more than €1bn and employs 7,200, specialises in mobile payments for retailers and transport companies, payment processing software for banks and other cashless systems, such as loyalty cards, for hoteliers.
Worldline plans to raise €610m in its IPO, more than half of which will be used to repay a loan to the parent company. Atos plans to keep a controlling stake.The offering has been priced at an indicative range of between €16.40 and €20 a share, implying an enterprise value of €2bn to €2.4bn. Worldline, whose headquarters are in the Parisian suburb of Bezons, filed its document de base – the first step towards flotation – with French regulators at the start of May.
Deutsche Bank and Goldman Sachs are acting as global co-ordinators and joint bookrunners alongside Bank of America Merrill Lynch, Barclays, BNP Paribas and Société Générale. Rothschild is financial adviser to the company.