Brexit Isn't Stopping U.K. Borrowers From Finding Cheap Money in Europe
By Anna Hirtenstein
Weeks after the U.K. split from the European Union, British
companies are continuing to benefit from the continent's cheaper
The least risky U.K. corporate borrowers are raising funds by
selling bonds through subsidiaries in Europe. The European Central
Bank is scooping up many of those bonds as part of its 1.85
trillion euro, equivalent to $2.2 trillion, monetary stimulus
program, geared toward bolstering credit markets in the
single-currency zone. Its sweeping purchases have helped reduce
borrowing costs for governments and companies across the
In the first two weeks of February, the ECB bought bonds issued
by subsidiaries of London-based companies such as oil major BP PLC,
consumer retail giant Unilever PLC and beer and spirits maker
Diageo PLC, the central bank's weekly filings show. It doesn't
disclose how much it spent on the bonds.
Both the Bank of England and the ECB are buying corporate bonds
to keep credit markets functioning smoothly after the coronavirus
pandemic dealt a blow to the global economy. But the BOE buys a far
smaller volume of bonds, and imposes more rigorous eligibility
Rates are also lower in Europe. The yield on investment-grade
corporate bonds in Europe was at 0.3% on Friday, compared with 1.7%
in the U.K., according to ICE indexes.
Bonds that are eligible for purchase by the ECB can carry a
slight premium, though yields generally remain very low, said
Aurélien Buffault, a credit portfolio manager at Meeschaert Asset
"It's important from an issuer point of view: it gives you
access to the market for a long time," Mr. Buffault said. Investors
have no way of knowing what the ECB will buy ahead of time, he
While the ECB can only buy government bonds issued by the 19
members of the eurozone, existing rules allow the central bank to
purchase corporate bonds from locally-domiciled subsidiaries of
The central bank is currently sucking up roughly 40% of each
eligible new issuance, bankers said. That is helping push down the
cost of borrowing for a swath of companies.
"The problem for the ECB is finding enough liquidity for this:
there's just not enough paper. It's difficult to source," Mr.
Last year, the ECB snapped up over EUR67 billion in corporate
debt, along with EUR265 billion of government bonds.
The ECB's actions highlight financial markets' disconnect from
the strained political ties between the U.K. and European
authorities. Since the Brexit transition period ended Dec. 31,
redrawing trade relations, the two sides have found themselves at
odds over vaccines, border controls and disruptions in the flow of
"Politically, it doesn't make any sense at all," said Carsten
Brzeski, chief economist for the eurozone at Dutch bank ING. "The
purchasing program is officially meant to ensure a smooth
transition of monetary policy in the eurozone."
The BP bonds purchased by the ECB in February were issued by the
energy company in December. It had raised EUR750 million through
the sale of 20-year bonds that carried 0.9% yield at issuance. That
compared with the 1.7% yield on a dollar-denominated bond sold by
BP's U.S. subsidiary a few months earlier, even though the dollar
bonds' maturity was half as long. BP didn't issue any
sterling-denominated bonds in the second half of last year.
"If the ECB is buying your bonds, there's certainly a pricing
benefit," said Marc Baigneres, a regional head of debt capital
markets at JPMorgan Chase & Co.
The ECB this month also bought some of the eight-year bonds that
Diageo had sold in September, raising EUR700 million. The yield on
the debt was 0.125% at the time of issuance. At the same time, the
company also sold GBP400 million of bonds with a yield of
Write to Anna Hirtenstein at firstname.lastname@example.org
(END) Dow Jones Newswires
February 22, 2021 06:15 ET (11:15 GMT)
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