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Wednesday, 26 September 2018

Rest easy: there were Eurobonds in 1965!

Editor-at-large Keith Mullin drives further down memory lane

Keith Mullin Commentary image

Keith Mullin, IFR Editor at Large

I don’t often do shouts-outs in my blogs or columns, but I’m making an exception today for the fine people at Atlas Advisors, the New York-based independent M&A and corporate finance advisory shop, for responding so promptly to the question I posed in my column on Friday.

On Friday, if you recall, I’d noted that in perusing historical industry data ahead of my Eurobond retrospective roundtable last Monday, there was a blank for the 1965 entry across straight Eurobonds, Euroconvertibles as well as foreign bonds. At the time, it did strike me as odd that this promising market that had grown so rapidly from year one to year two should simply zero in year three. But given my short timeframe late last week, I’d been forced to conclude that the numbers were the numbers.

That said, I’d thought the gap so bizarre that I put a bottle of champagne on the table as a prize for whoever offered me the most plausible explanation as to why the market flatlined in terms of issuance. That’s when I heard from Atlas. Truth be told, I was ready to hit the speed-dial to my most reliable champagne broker to ship a bottle of France’s finest to midtown Manhattan.

After all, the firm, founded 10 years ago by former JP Morgan M&A bankers Palden Namgyal and Roberta Mazzariol, houses a fair few industry heavyweights who know their onions. It’s a home-from-home for many former JPM bankers, including the legendary Roberto Mendoza (30-year tenure at JPM and a former head of corporate finance, M&A and private equity) and Richard Duron (24 years).

“The shift of European borrowing from the New York market to London and other European financial centers was followed in the latter half of 1965 by the entry of United States corporations or their foreign affiliates as large borrowers in the Eurobond market.

Rather than an early bid for the bubbly, though, my Atlas interlocutor actually pointed to my mis-statement, in that there had indeed been Eurobonds issued in 1965. Atlas had the grace to send me an extract from an article in the Federal Reserve Bank of New York’s Monthly Review of August 1968, which noted the following:

“The shift of European borrowing from the New York market to London and other European financial centers was followed in the latter half of 1965 by the entry of United States corporations or their foreign affiliates as large borrowers in the Eurobond market. Under the voluntary balance-of-payments program, announced in February 1965, participating corporations were asked to improve by 15 per cent to 20 per cent the aggregate of selected components of their individual balance of payments with developed countries.

“A wide range of possibilities was allowed to achieve this improvement, including higher exports, increased repatriation of earnings and increased borrowing abroad. As a result, participating corporations began to borrow heavily overseas, even at interest rates substantial above those in the United States.

“The demand for finance was met initially through direct borrowings from banks, but after mid-1965 the volume of Eurobond flotations by United States firms began to increase sharply and for the year as a whole amounted to $331 million, or about one-third of total Eurobond issues. With the appearance of United States corporations as large borrowers in the Eurobond market, the London institutions that had been active in the market lost their early lead as sponsors of Eurobond issues to New York underwriters.”

Armed with that info, I conducted some of my own research and located a University of Michigan Graduate School of Business Administration paper entitled: “A short anatomy of the Eurobond market” dated Fall 1974 and penned by none other than a youthful Ian Giddy, currently professor of finance at the Stern School of Business at NYU. His paper contained a number of tables sourced to the World Bank and Morgan Guaranty Trust showing that 1965 elicited US$380m in foreign bonds and lot more in Eurobonds.

So to the year that saw Lyndon B Johnson sworn in as US president; the funeral of Winston Churchill; the premieres of The Sound of Music, Tom & Jerry and Thunderbirds; Muhammad Ali knock out Sonny Liston; acoustic folkie Bob Dylan shock fans by going electric; Singapore gain independence; and Liverpool win the British soccer FA Cup for the first time, we can add: US$880m in Eurobonds issued!

 

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