A favoured debt listing destination globally, and sustained by a sophisticated platform of services and infrastructure that have been chiselled and developed over many decades, London is considered the investment banking capital of Europe, but Brexit is threating its position on the global landscape.
The securities market in London is one of the most liquid in the world, with over £3.5tn raised on the London Stock Exchange(LSE) through the more than 15,000 securities currently listed there. It is the deepest global debt capital market in the world with 2,570 international issuers and instruments in 38 different currencies, which makes the City a major platform for emerging market trades.
London is the premier location for Dim Sum bonds – bonds denominated in renminbi that are listed outside of China – and is the largest renminbi clearing centre outside Beijing; the largest Masala bond centre with 11 rupee-denominated bonds; and it is also a go-to destination for Islamic instruments – US$46bn has been raised in London via 64 different sukuk deals.
EMs are Here to Stay
How is Brexit going to impact on all of this? Well, the real impact Brexit will have in the way the City conducts its business is yet to be revealed, and will depend on yet undetermined factors that will be settled at the end of the “divorce” negotiations with the EU.
However, in the case of the debt capital markets, at least from the European perspective it will depend if there will be to secure access to the European single market, something that remains uncertain.
Most importantly it will rely on ability of the UK to ensure “passport rights”, which allow financial service companies one EU country to do business in other member-states based purely on their home state regulations.
According to Lillian Georgopoulou, Fixed Income Product Specialist at The London Stock Exchange: “While Brexit presents challenges, London is and has always been at the forefront of global financial innovation, powering growth and investment around the world and our markets have stayed resilient and open for business. London, almost uniquely, offers some of the deepest, most liquid multi-currency capital markets and its wide range of international investors underpins this resilience”.
She adds that over US$350bn has been raised in London’s debt markets since Brexit and that they continue to see “strong interest” from corporates and sovereigns from around the globe including emerging markets like Africa and Asia.
“For example, since the start of 2017 we have welcomed Nigeria’s first international bond since 2013, raising a total of US$1.5bn; India’s Housing Development Finance Corp (HDFC) chose London for the world’s largest corporate Masala Bond; and National Bank of Abu Dhabi became the first green bond issuer from the Gulf region raising almost US$600mn. Israel also launched its largest-everEuro denominated bond offering,” she added.
John Peta, Head of EM Debt at Old Mutual, doesn’t share the same enthusiasm for the future euro-denominated instruments in London.
“I can certainly see trading and placement of euro-denominated debt moving to Europe,” Peta stated.
However, he shares the belief that EM and US securities will stay in London, regardless of the outcome of the negotiation.
“Brexit will have few implications for EM debt in London…US dollar denominated instruments should remain firmly in London. The whole infrastructure of issuing, trading and managing EM assets is here, and I think it will take a lot to dislodge that.”
He also added that the language barrier would prove tough to overcome for any other European financial centre looking to compete with London.
Brexit negotiations between the UK and Brussels are sure to be long and complicated, with the future of London as a financial centre in jeopardy. However, while London’s ability to place EUR denominated debt may be in question, the resilient structure for EMD seems to be here to stay.