Bank of England Lists Corporate Bonds Eligible for Purchase
September 12 2016 - 4:00PM
Dow Jones News
LONDON--U.S. tech giant Apple Inc. and German auto maker Daimler
AG are among a host of non-British companies whose debt is eligible
for the Bank of England's corporate-bond-buying program, the
central bank said Monday.
The BOE published a list of around 300 securities it can buy in
a £ 10 billion ($13.3 billion) program scheduled to begin Sept. 27
and run for 18 months. The list is made up of bonds issued by more
than 100 companies, many of which have significant operations in
the U.K. but are headquartered overseas.
Other non-British names on the BOE's shopping list include U.S.
biotechnology firm Amgen Inc., French utility É lectricité de
France SA and Danish energy firm Dong Energy AS.
The inclusion of non-British names underscores the unusual
lengths some central banks are going to in an effort to stimulate
sluggish economies. The U.K. has long been a magnet for foreign
investment, and the BOE said the principle criterion for inclusion
is that the issuer makes "a material contribution to the U.K.
economy." The issuer's debt must also be high-quality investment
grade and denominated in sterling.
Plenty of British firms make the cut, including newspaper
publisher Daily Mail & General Trust PLC, whose flagship title
The Daily Mail supported the U.K.'s exit from the European Union in
a referendum in June. Bonds from oil giant BP PLC and drug makers
GlaxoSmithKline PLC and AstraZeneca PLC are also included.
Financial firms are excluded.
In setting its eligibility criteria, the BOE has taken a page
from the Bank of Japan's playbook. Japanese officials' purchases
aim to support firms that are "proactively investing in physical
and human capital" and "enhance their growth potential through
effective corporate governance," among other criteria. The BOJ
still doesn't directly invest in these corporations. Rather, it
buys shares in exchange-traded funds that track stock indexes that
officials deem eligible.
The European Central Bank, which is also engaged in corporate
bond purchases, buys euro-denominated bonds of non-bank
corporations established in the euro area.
The BOE's corporate bond-buying program is part of a
multipronged stimulus effort announced last month in the wake of
the U.K.'s decision to leave the EU.
The central bank also revived a crisis-era government
bond-buying program, cut its benchmark interest rate to a new low
of 0.25% and lined up cheap four-year loans for banks to cushion
the economy from a possible slowdown.
Officials fret that uncertainty over the U.K.'s future economic
ties to its largest trading partner may weigh on spending and
investment, although a recent run of data suggest the economy has
weathered the initial surprise of the result reasonably well.
Most BOE officials have high hopes for the corporate-bond plan,
even though it is a relatively small slice of their planned
purchases overall. BOE Gov. Mark Carney, in testimony to lawmakers
Wednesday, said the plan had already led to an uptick in
corporate-bond issuance. The theory is that the policy lowers
borrowing costs for companies and should hopefully spur
investment.
Some officials and economists have reservations, though. Kristin
Forbes, a member of the BOE's rate-setting panel who opposed the
purchases, told lawmakers there is a risk the BOE may end up buying
the bonds of firms about which there are "bad headlines."
Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics,
added there is no guarantee the companies whose debt is purchased
will make new investments in the U.K. "What they can't do is trace
where the money goes," he said.
Write to Jason Douglas at jason.douglas@wsj.com and Jon Sindreu
at jon.sindreu@wsj.com
(END) Dow Jones Newswires
September 12, 2016 15:45 ET (19:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
BP (NYSE:BP)
Historical Stock Chart
From Aug 2024 to Sep 2024
BP (NYSE:BP)
Historical Stock Chart
From Sep 2023 to Sep 2024