NEW YORK (Reuters) – U.S. companies are starting to issue corporate bonds again in the international market after a drop-off last year due to the pandemic, as firms seek to widen their investor base, Goldman Sachs said in a research note on Tuesday.
So far in 2021, foreign markets have captured 12% of bond issuance from U.S.-based companies, up from 7% last year. In 2019, 17% of U.S. corporate date was issued overseas.
U.S. companies, particularly large multinationals, typically issue debt in foreign bond markets to hedge the currency exposure they have from doing business in that country, to diversify their funding base outside the U.S. market, and to take advantage of lower funding costs when there is a large gap in interest rates.
“Though FX and hedging costs have fallen, we believe the likely reason that U.S. firms are again tapping international markets is structural rather than opportunistic,” wrote Goldman analyst Spencer Rogers in the note.
“After record-breaking USD investment grade supply in 2020 and a very brisk start to 2021, the need for U.S. firms to broaden their investor base and avoid the binding constraint of issuer concentration limits is as evident as ever,” he added.
Europe, by far, is the biggest international market where U.S. firms issue debt given that borrowing costs in the region have been lower than in the United States for many years.
But Goldman’s Rogers said funding cost is not the primary driver pushing U.S. firms to issue debt in Europe.
“We suspect that given the need to diversify their funding base U.S. issuers will continue to increase their reliance on international markets to meet their funding needs whether or not the current favorable FX hedging conditions continue to exist,” the Goldman analyst said.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski)
