What’s Going On Here?Data out on Tuesday showed companies sold over $100 billion worth of bonds last week – before they have to resort to more desperate fundraising measures… What Does This Mean?The first week of the year’s always a busy time for the bond market, but this one’s been busier than most – not least because companies are scrambling to raise money before interest rate hikes push up the cost of borrowing. In fact, companies have raised over $100 billion selling bonds in what’s become the second-biggest start to a year on record. Investors aren’t just sniffing around low-risk debt either: pandemic-battered cruise operator Royal Caribbean raised $1 billion last week, and AMC Entertainment – which had a brush with bankruptcy in the height of the pandemic – is reportedly thinking about getting in on the action too. Why Should I Care?The bigger picture: Time is of the essence.
Companies are right to get a move on, with news emerging last week that the Federal Reserve is thinking about upping interest rates sooner than expected. And since traders are betting that there could be as many as eight rate hikes by early 2024, selling debt might get very expensive very quickly. Investors are okay with it: they’ve already started withdrawing their orders for new bonds, in hopes it’ll only be a couple of months before they can buy into them at higher yields.
Zooming out: The backup plan.
It stands to reason, then, that companies aren’t just relying on debt to raise cash, but venture capital (VC) too. Just look at Getir: the Turkish grocery delivery company is reportedly looking for more than $1 billion in investment from VC firms, in a move that would see the company valued at $12 billion (tweet this). That’s an ambitious goal, but they might be knocking at the right door: American VC funds raised a record amount of cash last year. | 