What next for the ORB

At the end of last year I had an optimist feeling that for 2014 the ORB would see a raft of new bonds coming to the market

As we come to the end of Q1 this optimism appears to be misplaced. The number of new listings; (or was that a solitary listing?)  have been woeful, and the increase in volumes would have been much worse if it was not for existing bonds being topped up under current listings.

I had a belief, as widely predicted,  that late 2014 early 2015 would be the cusp for  the upward movement in interest rates. Subsequently it is assumed that CFOs and alike would in early 2014 be reviewing their debut provision over the medium to long term and would look  to lock their borrowing in at  rock-bottom levels. This  does not appear to have materialized.  This then begs the question that when all factors indicate now is the time for the ORB to flourish, why is it not?

Much has been made about business being able to attain loans at competitive rates, but from my analysis of Blue Chip 250, AIM and FTSE listed companies, they have by in large been able to access competitive finance over the last 2-3 years. It was the next tier of small to medium size  PLCs, and Ltd companies  that had struggled to find finance as banks and financial institutions tighten their lending criteria. This however has eased over the last 18 months with the addition of  peer and crowd lending, as well as government backed loans, interest rates for these types of businesses have reduced considerably

A look at the ORB in comparison to its siblings in Italy and Germany show that the ORB is dominated by large/PLC companies as opposed to a more widespread range of companies (If anything in Germany the bourse is more skewed to the SME sector.) I cannot with any certainty state that to bring a bond to market via the ORB is a more or less costly than using a Continental bourse, but with a greater proliferation  of small companies I think it would fair to assume that cost is not as greater a factor in bring a bond to market in Italy or Germany as say to the UK.  

By nature I took the razzmatazz of the ORB birthday celebrations last month with a degree of skepticism, and for the press release and  online material that was released it did appear that there was an element of talking up a bad situation. Clearly the ORB, and three years on from its launch, is not obtaining the volumes that are needed to make this sustainable, nor is it  appealing to as wide a potential field as other more established bourses have.

Would be interest to hear how others see the current situation and where they see the ORB in the future?

PS – Sods law dictates that in the next 30 days  20 bonds will come the market representing all segments, ownership types, and sizes  and thus once again it is all sweetness and light in the ORB world : )

Comments

  • Like you I have been disappointed by the lack of new issues. So much so, that I have started investing a fair proportion of my savings in managed funds. Now this is something I'm not over keen on in the current environment. I am expecting that in a potentially lower return period ahead of us with the markets looking fully valued, that the charges will become more significant against the backdrop of lower returns. I sat on a significant proportion of cash for a while and feel I have been somewhat sucked back into the market. I always have felt that that I would take slightly more risks than I should at my stage of life. If it works out, I'll retire early. If it doesn't, I'll work for a few more years. I quite enjoy my job, so the prospect of working a little longer than I intended does not really bother me.
  • Morning All

    Well, ISA season coming in to full swing now. People with their current year scrambling to throw money at something with a decent yield and the balance with ISAs to open for the new tax year. New ISA rules about to make it easier to move from stocks to shares and vice versa. Everything pointing to the sweetest of spots for issuance and so far......nothing. Surely some enterprising companies need funding somewhere?!
  • You'd think there might be some trying to get some bonds away before the interest rate rises are upon us and yields rise. Perhaps they have been nervous for some while on hiring and spending and have cash piles, so don't need funding.
  • Link to, what I think is, an interesting post on The Motley Fool as to why there are so few ORB issues these days:-

    http://boards.fool.co.uk/it-will-be-interesting-to-see-where-this-ends-up-13002958.aspx
  • Interesting post. Thanks. May explain a lot. Case in point - Enquest ?
    Having moved significantly above par, it has retraced it all in just three days. Follows announcements about tapping new funds in $500m bond issue and Moody's assigning ratings to the company for the first time.
    This reaction rather suggests the claims of retail bondhoders will be sub-ordinated to, or at best equal to, the new bondholders ?
    And, how much are the interests of the shareholders being put before those of the bond holders in this capital raising exercise ? Why not a rights issue to raise capital for what appear to be fairly risky growth opportunities ?
    I wonder if Oliver is able to throw some light on both the generality of the thread, and the specific example, namely Enquest ?? Robin
  • Banks behaving badly. Has this ever happened before? :)
  • Thanks for the link Heraldic; interesting reading.

    Putting yourself in the position of a CFO and with the prospect of increasing regulation, potential for bondholder revolt, excessive below the line costs of bringing the bond to market, and increasingly cheaper money available else where, it might not be such a surprise that a ORB listing is not an attractive prospect, and is thus well down the pecking-order when it comes to potential debt provision.

    How the ORB can/or will adapt we will have to wait and see.
  • I don't think the narrowness of the ORB market is just about supply. I wonder about the breadth of demand too. It seems that when a new issue is announced that a good number of the 'born on ORB issues' start to fall ,sometimes 2% or more, and out of step with older corporates.
    This suggests to me that the rate at which new money is coming into the market is also a constraint, especially so outside the ISA season.
    I am a client of Hargreaves Lansdown and have built up a modest bond portfolio with them. They are good people to deal with, but I wonder whether they are truly committed to retail bonds. As others have commented before, they dont always handle a new bond issue. Often one has to ask them. Also their commission on sale or subsequent purchase at1% capped at £50 is high. There have been several occasions when this has deterred me from dealing when I should have done so. Also, an inability to deal online.
    It is their privelege, but they are behaving as if they are a rather hesitant market follower. Being as dominant in retail as they are, this may be contributing to the lack of depth in the retail bond market.
    In my view, there is a need for others, not just Cannacord, to invest in developing the market, to everyone's benefit.
    My guess is that H-L are uniquely placed to take on the mantle of a market leader if they wanted. They would need to be proactive, and be the best value service provider. They could do much more to promote retail bonds to their many ISA and SIPP clients. They might even consider some form of pooling arrangement for new clients with small portfolios, as undertaken by the peer to peer lenders.
    Anyone agree ? Robin
  • Robin, you may well have a point. Youinvest (previously Sippdeal) offer online trading in a wide range of products but not retail bonds. From that I take it that they see retail bonds as being a low-volume sector for the reasonable future, not worth setting up online facilities for. It does seem, though, that the regulatory hurdles in combination with the coupons expected by the market renders ORB unattractive to potential issuers compared with other sources of funding.
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