Treasury summons bond houses over private placements

The UK’s largest bond houses will meet Financial Services Secretary Lord Myners this week as the Treasury looks to accelerate growth in the private placement market.

In a roundtable taking place at the Treasury on Wednesday, CIOs from some 15 firms will discuss the feasibility of developing the UK’s private placement market as proposed in Chancellor Alistair Darling’s Budget report last week.

The Government says it wants to work with asset managers to encourage further take-up of private placement and create a wider issuer and investor base.

The UK’s private placement market is at present relatively small, totalling £4.3bn in the first half of 2009 – raised through 148 transactions.

However, UK issuers and investors have been active in the much larger US market, where 217 issues generated $97.9bn in 2008 and 582 issues raised $159.4bn in 2007.

Providing there is sufficient appetite for a larger market in PPs – which do not require a public credit rating and have a maturity range from five to 40 years – the Treasury hopes to work with the industry to set price and risk benchmarking.

“As a complement to the existing market, the Government is interested in encouraging potential UK issuers and investors to work together to evaluate the feasibility of a sterling-denominated private placement market and seeks to encourage the market-led development of a broader, more sustainable and wide-ranging issuer and investor base,” the Budget read.

“The Government will seek to work with parties, including M&G, Standard Life Investments, Aviva Investors and others, to help with the development of a sterling private placement market, and with price and risk benchmarking to improve transparency and liquidity so it can become a more established asset class.”

The meeting comes a week after the Debt Management Office confirmed it would increase issuance of longer-dated conventional and index-linked gilts in the coming financial year in response to strong structural demand.

Myners says gross gilt issuance is projected to be £187.3bn in 2010-11, down from £227.6bn in this financial year.

Projected gilt sales in long conventional and index-linked gilts will increase to 45% of total gilt sales, with issuance rising £2.4bn to £83.3bn.

The Government will sell £59bn of short conventional gilts in 2010-11.