EUROPE - Barclays Global Investors (BGI) wants standards in the European debt capital market improved.
Bond disclosure levels, documentation and structure can be poor, said BGI, and these in turn affect the efficiency of the market to the detriment of both issuers and investors.
BGI has today published ‘Credit Investment Process: a guide for investors and borrowers’. The guide sets out how market standards in the European debt capital market can be improved.
Karl Bergqwist, head of fixed income credit investment process, said: The guide sets out how BGI assesses credit and bond structures. Poor market standards in bond issuance need to be tackled. BGI wants to engage with market participants to improve market standards.
Poor levels of disclosure, documentation and incorrectly structured bonds are bad for issuers, investors and the market in general. It is in the interest of all parties concerned to raise market standards so the market can operate more efficiently.
Well structured bonds clearly define the risk investors are asked to take. Issuers benefit from providing a well-structured bond because funding costs can be lowered with improved access to liquidity. Investors benefit from a well structured bond because it should demonstrate lower price volatility and offer better dividend and capital protection to bondholders.
BGI wants bond investors to only take on credit risk, not event risk. Defined as when the risk profile of the bond is changed to benefit equity investors at the bondholder’s expense. Poorly structured bonds increase the potential for event risk.
By Luke Clancy
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