Oxford bond debut success shows UK universities another course
Oxford bond debut success shows UK universities another course
$1 billion bond, the first in its 1,000-year history, is good news for Britain’s top academic institutions at a time of anxiety over Brexit-related funding shortfalls and calls to scrap student tuition fees.
The 100-year bond, launched on Dec. 1 with a 2.5 percent coupon, has taken the market for deals for UK universities and colleges to a new level on a par with such big US names as Harvard and Yale.
Technically, the bond was the biggest from any university in the world. Buying interest equalled $2 billion or double its face value.
The day after its launch, it was among the top 20 traded issues in the whole of Europe, according to Trax, a subsidiary of debt trading platform MarketAxess.
That is cause for celebration for peers contemplating bond sales, even if their credit scores are less impressive than Oxford’s gold-plated triple-A rating. The oldest university in the English-speaking world, Oxford topped a global ranking by The Times newspaper for the first time last year.
It’s an uncertain time for Britain’s academic institutions.
The cost of student tuition fees, which make up almost half of UK universities’ revenues, has been catapulted to the top of the political agenda by young voters who deserted Britain’s ruling Conservative party in a snap election in June.
Universities expect these fees — currently £9,250 ($12,424) a year — to be reviewed in the new year, meaning they are unlikely to rise further and could even be cut.
“I think the whole higher education sector is worried about the debate around tuition fees,” Oxford’s Pro-Vice-Chancellor for planning and resources David Prout told Reuters after the bond sale earlier this month.
Britain’s plan to leave the EU in March 2019 is also weighing heavily.
UK universities are already finding it harder to attract and retain EU-born students and staff, with official figures showing undergraduate course applications from EU students fell 7 percent this year.
The other countries in the EU send around 58,000 students, or 8 percent of undergraduates and 15 percent of postgraduate students, to the Russell Group comprising 24 top-tier universities in the UK. Around 25,000 of their staff come from other EU countries, too.
Once Britain leaves, these institutions could also lose their places on EU-funded research projects after 2020.
A big worry is how Brexit will affect the UK’s ability to borrow from the European Investment Bank, UK universities’ biggest source of lending.
The bank, the EU’s main development lender, stopped support in March after London triggered the Article 50 clause to formally start the EU withdrawal process.
Some 36 British universities, including University College London, Edinburgh, Swansea, Bangor, Newcastle and Oxford, have borrowed almost €3 billion ($3.52 billion) from the EIB over the past decade to fund campus upgrades.
That’s more than any other country and almost double the amounts that went to Germany and France.
Last year alone, the EIB lent €671 million to UK universities.
But unless EU treaties are amended, Britain will have to leave the EIB after Brexit.
“This (EIB funding) is an area where people (at universities) feel there might be changes, so they are looking at the option of the public and private placement markets,” said Dominic Kerr, managing director of Debt Capital Markets for HSBC.
Kerr has helped launch seven of the eight public bonds that have so far been issued by UK universities, including the first by Cambridge in 2012.
Kerr estimates there have been around 50 market-based funding deals for UK universities and individual colleges in total if “private placements” — bonds offered directly to a just one or a few investors — are included.
Fraser Dixon, JP Morgan’s executive director for UK & Ireland debt capital markets, said he had several interested calls after his bank arranged the Oxford bond.
“Having seen what is able to be achieved in the markets and with the EIB possibly disappearing as an option, I think other institutions will be considering their options,” Dixon said.
“The bond markets are offering greater capacity and longer-dated money than the EIB traditionally has.”
Many still hope EIB funding will not vanish altogether.
An EU-UK “divorce deal” outline published last week specifically stated: “The UK considers that there could be mutual benefit from a continuing arrangement between the UK and the EIB,” and that it wanted to “explore” the possibilities.
The EIB does lend to non-EU universities in countries such as Morocco and Tunisia, and the group is mulling an offshoot that would include the UK, sources have told Reuters.
“Looking ahead, if there were to be clarity on the future relationship with the UK, let’s see, but from our side we would happily look at supporting higher education in the years ahead,” an EIB source said.
Pompeo says China is engaging in ‘predatory economics 101’
- He said China’s recent claims of “openness and globalization” are “a joke.”
DETROIT: China is engaging in “predatory economics 101” and an “unprecedented level of larceny” of intellectual property, Secretary of State Mike Pompeo told a business audience Monday.
Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the US and China. Both nations started putting trade tariffs in motion that are set to take effect July 6.
He said China’s recent claims of “openness and globalization” are “a joke.” He added that China is a “predatory economic government” that is “long overdue in being tackled,” matters that include IP theft and Chinese steel and aluminum flooding the US market.
“Everyone knows ... China is the main perpetrator,” he said. “It’s an unprecedented level of larceny.”
“Just ask yourself: Would China have allowed America to do to it what China has done to America?” he said later. “This is predatory economics 101.”
The Chinese Embassy in Washington did not immediately respond to a request for comment.
Pompeo raised the trade issue directly with China last week, when he met in Beijing with President Xi Jinping and others.
“I reminded him that’s not fair competition,” Pompeo said.
President Donald Trump has announced a 25 percent tariff on up to $50 billion in Chinese imports. China is retaliating by raising import duties on $34 billion worth of American goods, including soybeans, electric cars and whiskey. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.
Wall Street has viewed the escalating trade tensions with wariness, fearful they could strangle the economic growth achieved during Trump’s watch. Gary Cohn, Trump’s former top economic adviser, said last week that a “tariff battle” could result in price inflation and consumer debt — “historic ingredients for an economic slowdown.”
Pompeo on Monday described US actions as “economic diplomacy,” which, when done right, strengthens national security and international alliances, he added.
“We use American power, economic might and influence as a tool of economic policy,” he said. “We do our best to call out unfair economic behaviors as well.”