Alpha Blue Ocean

“WE EXPECT DEMAND FOR OIL TO CONTINUE TO RISE, WHICH COULD LEAD TO A BUSY YEAR FROM A CAPITAL MARKETS PERSPECTIVE.”

AMINE NEDJAI

CEO, ALPHA BLUE OCEAN

With the labour market healing and inflation increasing, the Fed is taking on a more hawkish stance, which is causing the short end of the yield curve to increase rapidly and, in return, credit spreads have increased as well. The Fed will be less accommodative, which will cause credit spreads to rise further as investors demand higher premiums, especially at record high duration levels, meaning the market is very sensitive to interest rate increases. What is particularly worrying is the amount of leverage raised over the past years and, while large profitable companies have been able to strategically raise debt to shore up their balance sheets, a lot of companies will have to tap into the market in 2022 to refinance their debt, and the medium- and small-sized firms may find themselves in a very difficult situation as investors ask for higher premiums. Given our focus is hybrid debt, we view this as an opportunity whereby many companies will be able to benefit from our alternative financing model. At ABO, we provide flexible hybrid financing solutions which can be viewed as mezzanine type debt that does not require cash redemption. This approach provides companies with the flexibility to redeem in either cash or shares, depending on what is most suitable for them at a particular time. As markets become even more volatile, issuers will want to secure funding for the next few years using our products in the knowledge that we are committed to financing them no matter the market conditions. The main risk will be the drop in stock market liquidity, especially in the small-caps segment, which exacerbates volatility further and requires greater fine-tuning to our structured products. As for sectors, we believe oil and gas could be interesting given the level of underinvestment and the number of recent bankruptcies over the past years which has caused drilling in US to drop significantly. We expect demand for oil to continue to rise, which could lead to a busy year from a capital markets perspective. Furthermore, we continue to focus on healthcare, and we expect this sector to continue to do well. As the sector continuously innovates, it will attract capital flows, especially in nascent parts, such as longevity, and the supply of companies coming into this space will be competing heavily for this capital which presents a great opportunity for us.

CHAPTER FOUR

ESG