Junk-Bond Investors Raise Secrecy Concerns as Issuers Snub EU

  • Bondholders to discuss growth of Channel Islands debt listings
  • Takko has shifted notes from Luxembourg to avoid disclosures

Junk-bond buyers are griping about the rising number of companies listing debt in the Channel Islands to sidestep toughened European Union regulations.

Members of the Association for Financial Markets in Europe, including bondholders, underwriters and lawyers, will discuss the topic at a Jan. 18 meeting. The talks in London follow similar discussions a few months ago.

“Given that it looks like the practice may be increasing, investors are concerned,” AFME said in an e-mail to Bloomberg News.

The issue received new focus this month after fashion retailer Takko shifted its bond listings to the Channel Islands from Luxembourg to avoid reporting and compliance requirements introduced under the EU’s Market Abuse Regulation regime. At least 11 other borrowers have listed more than $6.9 billion of new junk bonds on the islands, which aren’t part of the EU, since MAR came into effect in July.

“This is a turning point for the market,” said Felix Fischer, head of research at Lucror Analytics in Singapore. “As long as bondholders don’t push back, companies will continue to choose this route because it’s easier for them to report less.”

Reporting Loophole

MAR closed a loophole in EU rules that let bond issuers control the circulation of earnings reports if they don’t have a stock listing on a major exchange in the trade bloc. That left potential investors struggling to find financial data for inherently risky junk-rated companies.

Takko, which is owned by Apax Partners, moved its 525 million euros ($548 million) of bonds from Luxembourg because it was concerned that publishing information to meet MAR’s standards would aid competitors, it said by e-mail. The new regime also introduces new administrative requirements and costs, as well as tougher trading rules for executives.

The fashion retailer didn’t release its most recent earnings report publicly. It sent a press release with some earnings details to Bloomberg News following a request. The company controls access to the investor-relations section of its website by requiring a registration.

Bond Shift

Lincoln Finance Ltd. also moved a combined 1.63 billion euros of notes in dollars and euros to the Channel Islands from Luxembourg in September. The company didn’t respond to a request for comment.

The Takko and Lincoln Finance delistings are “incidental” to Luxembourg Stock Exchange, said Carlo Oly, the bourse’s head of relationship management. More than 10,000 instruments are listed on the exchange’s Euro MTF market and these were the only delistings this year, he said.

Channel Islands Securities Exchange touts itself as a less onerous alternative to EU bourses as it seeks to compete with Luxembourg and Dublin, the main players in Europe’s junk-bond market. It isn’t covered by MAR because the Channels Islands, which sit about 20 miles off the northern French coast, are a separate jurisdiction from the U.K. and aren’t part of the EU.

The exchange has received more applications for listings recently, according to Chief Executive Officer Fiona Le Poidevin. It is “fully regulated” and uses “sufficiently robust’’ market abuse rules, she said.

Rental-car operator Avis Budget Group Inc. and travel company Carlson Wagonlit are among borrowers that have listed new bonds in the Channel Islands since July 1, according to data compiled by Bloomberg. Mydentist, Europe’s largest dental-care provider, started the trend with a 425 million-pound ($525 million) sale that month.

“There’s less scrutiny and less accountability for companies that choose the Channel Islands,” said Lucror’s Fischer. “It’s a concern for investors.”

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