20 May 2024
The debt capital market (DCM): What is it and how does it work?
The fixed-income bond market is a key instrument for companies and governments seeking long-term funding, as well as investors in need of liquid and safe investment products.
Investment banking operates in the markets to offer wholesale clients a wide variety of products and services. Within this range, clients from the private or public corporate sector and from the financial sector who need funding turn to teams specializing in bond issuance or DCM. Debt Capital Markets offer a complementary financing alternative to bank loan financing, which is gradually gaining ground over the latter.
One significant statistic reflects this trend well: in the United States, approximately 70% of funding comes from the capital market, while in Europe the figure is 30%. This percentage is expected to increase in the coming years, as more and more companies recognize the benefits and opportunities offered by capital markets in terms of access to capital and diversification of funding sources and investor base.
The debt capital market is a market for trading securities such as bonds and promissory notes. Debt capital markets are used by companies and governments to obtain long-term funding. They offer liquid and safe investment products that can be traded on organized markets for institutional investors such as funds, banks or insurance companies.
How do BBVA CIB's DCM teams operate?
The BBVA CIB teams that operate on the debt markets work closely with companies that wish to issue fixed-income instruments as funding, and with issuers, to structure and execute debt transactions that meet their funding needs. This involves advising on the optimal debt structure (ie: in terms of term, bond vs. bank debt composition, fixed or floating coupon format, currency...) and determining the issue terms (total issue amount, coupon, term and contractual terms, among others). They also evaluate the appetite of institutional investors for the different debt instruments and design the financing offer based on this interest.
The DCM team is also responsible for originating the issue, designing its terms and conditions and preparing, together with the issuers, all supporting documentation. The next phase is the placement of the bonds, which involves distribution teams, who are in charge of marketing and distributing the debt instruments to institutional investors. They use their relationships with an extensive network of investors (mainly fund managers, financial institutions and insurance companies) to ensure broad participation in the placement of dbt securities and optimize financing conditions for issuers.
In this way, the BBVA CIB teams support clients throughout the whole process. They help them define their debt profile, adapt their funding to their time horizon and choose the best product for their needs. In this way, they can optimize and customize the solution offered as far as possible. BBVA is known for its in-depth knowledge of the clients with whom it operates and the markets in which it is present, and for the great flexibility of its cross-border operations, allowing it to apply the best solutions regardless of the geography in which the client is located.
Emerging market debt and its value in debt capital markets
One of the capabilities for which BBVA is widely recognized is its expertise in emerging markets, in particular as a bond provider. Its prominent presence in Latin America and Turkey contributes to this recognition, above all in Turkey, where its position as one of the leading investment banks has become consolidated in 2024 after its participation in three prominent public sector debt placements: the placement of a 10-year USD 3,000 million bond for the Turkish Treasury; the placement of a 5-year USD 500 million bond for the Turkey Wealth Fund (TWF); and the placement of a 7-year USD 500 million bond for Eximbank, the Turkish export credit bank.
BBVA maintains a strong commitment to these regions, and is firmly convinced of the value that emerging economies can contribute to funding projects that promote investment in sectors critical to the sustainable and long-term development of societies, such as infrastructure, health and education. Sustainable growth is one of BBVA's strategic pillars as an institution, and fixed-income instruments play key role in achieving this objective.