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Published by Gbaf News
Posted on December 3, 2014
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Announcement of Intention to Float on the London Stock Exchange
Axiom European Financial Debt Limited (“AEFD” or the “Company”), a closed-ended investment company registered and incorporated in Guernsey and managed by Axiom Alternative Investments SARL (“Axiom” or the “Investment Manager”), announced its intention to launch an initial public offering (“IPO” or the “Offer”).
The Company is seeking to raise a minimum of £100 million pursuant to a placing (the “Placing”) of new ordinary shares in the capital of the Company (the “Shares”), with the potential to raise up to £500 million, subject to investor demand. The target investors will be institutional and sophisticated investors. AEFD intends to apply for admission of the Shares to trading on the Specialist Fund Market of the London Stock Exchange (“Admission”).
The Company will seek to identify opportunities presented by the Basel III and Solvency II transitions in Europe and will target a 10% annual return, including a 6% annual dividend payment, through investment in the following instruments:
Regulatory Capital Instruments, being financial instruments issued by a European Financial Institution which constitute regulatory capital for the purposes of Basel I, Basel II or Basel III or Solvency I or Solvency II; and
Other Financial Institution Instruments, being financial instruments issued by a European Financial Institution, including without limitation senior debt, which do not constitute Regulatory Capital Instruments.
Investment Summary
- Changes to the structure of Regulatory Capital Instruments create opportunities: as a consequence of Basel III, financial companies are expected to replace (‘grandfather’) older hybrid capital instruments that no longer qualify as regulatory capital with new qualifying instruments. This provides opportunities for the Investment Manager to apply its technical expertise to identify attractive investments for the Company.
- Spreads are still wide by historic standards and should tighten as the market catches up: the current spreads in the financial sector are wider than historical averages and at the same time the actual risk is considered to have reduced, making it an attractive point in time, in the view of the Investment Manager, to invest in banks’ debt instruments.
- Very large universe of investible securities: it is estimated that regulatory capital issued by financial institutions in Europe is a very large market in excess of €1 trillion, which the Investment Manager expects will provide considerable investment opportunities for the Company.
- The risk profile of European banks has improved: changes to banks’ balance sheets have not yet, in the view of the Investment Manager, been fully reflected in the pricing of bank credit risk, providing further investment opportunities.
David Benamou, Managing Partner of Axiom, the Investment Manager to Axiom European Financial Debt Limited, said:
“The financial crisis resulted in a massive change in financial regulation in Europe. The Basel III transition and ECB regular stress testing led banks and other institutions to increase and improve their regulatory capital.
“As European banks continue to repair their balance sheets and to recover from the crisis, we believe that considerable investment opportunities will arise in relation to subordinated debt that is eligible as regulatory capital.
“In the long term, this hybrid debt offers an attractive risk / return profile, especially in the ‘yield desert’ we find ourselves. With our strong expertise in hybrid debt, we believe that we are well placed to manage a fund that would allow investors to benefit from this asset class.”