Junk-Bond Buyers Unfazed by Issuers Avoiding EU Rules, AFME Says

  • Issuers look at listing outside trade bloc to dodge MAR regime
  • Many high-yield investors accept MAR costs outweigh benefits

Junk-bond investors are prepared to accept issuers sidestepping tougher European Union market rules, according to the Association for Financial Markets in Europe.

Bondholders see the advantage in high-yield companies listing debt outside of the trade bloc in order to avoid the administrative costs of the Market Abuse Regulation, or MAR, regime, said Gary Simmons, managing director of AFME’s high-yield division. The industry group held a meeting on Sept. 28, where bond buyers discussed the topic with syndicate bankers and law firms.

“Investors were initially unclear as to exactly why listings in non-EU exchanges were being done,” Simmons said. However, after the meeting, it was concluded “that as long as these companies keep up robust disclosure and transparency practices, it doesn’t matter where they list.”

MAR will also be discussed at AFME’s annual European high-yield conference in London on Tuesday, following initial concerns that the EU’s attempts to improve transparency would backfire by encouraging issuers to list bonds in markets with looser rules. Since the regime came into force on July 3, companies including MyDentist and container-maker Schoeller Allibert Group BV have sold junk bonds listed in the non-EU Channel Islands.

“People are broadly getting comfortable with the idea of non-MAR subject listings,” said Michael Dakin, a partner at law firm Clifford Chance. “MAR isn’t really designed to address the needs of the high-yield market, as such it doesn’t add a lot of value, but it does result in significant costs.”

Administrative Costs

The MAR rules are more relevant to shares than bonds, and listed companies are better able to absorb the administrative costs because they generally already have investor relations departments, Dakin said. MAR’s requirement include the prompt and public reporting of material events, along with record-keeping about key executives and meetings with investors.

Channel Islands Securities Exchange is touting its non-EU and non-MAR status as it seeks to lure junk-bond issuers. The bourse says that local regulations ensure transparency, while avoiding the more onerous parts of the MAR regime. It’s competing with Dublin and Luxembourg, Europe’s largest exchanges for high-yield debt.

Investors have bought bonds listed in the Channel Islands, partly because they are struggling to find yield amid central-bank easing. Schoeller Allibert’s 210 million euros ($231 million) of October 2021 bonds are quoted at 104 cents on the euro, while MyDentist’s 275 million pounds ($335 million) of August 2022 notes are at 98 pence, according to data compiled by Bloomberg.

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