European corporate bond wrap: Soaring demand for telecoms keeps spirits high
Two telecoms from opposite ends of the investment-grade rating spectrum and opposite ends of Europe, attracted a combined total of €14.3bn in interest for bonds on Tuesday, as demand strips corporate supply with many European firms in blackout.
First out of the blocks was Swedish provider TeliaSonera, rated A3/A–/A–, which mandated Credit Agricole, Deutsche Bank, ING and RBS for a rare 12-year €500m minimum deal.
Initial guidance was given at mid-swaps plus 125bp–130bp and finalised at +118bp, implying a very slim new issue premium of just 10bp. One banker on the deal said that the pricing could even have been a little bit tighter, considering demand amounted to €4.3bn. However, another said that many investors would not want to buy into a 12-year euro-denominated bond, so pricing had to be reasonable.
Following in the footsteps of TeliaSonera, Spanish peer Telefonica, rated Baa1/BBB+/BBB+, opened books on a €1.5bn six-year bond via Citigroup, Mizuho, RBS, Santander GBM and UniCredit On Tuesday. Final spread for that transaction was set at mid-swaps +300bp, revised from guidance of mid-swaps +305bp–310bp and from initial price thoughts in the mid-swaps +310bp area.Interpolating the group’s existing bonds, this indicated a new issue premium of around 20bp.
By the time the books closed at about 10:40 GMT, demand had reached about €10.5bn, causing some bankers to criticise the spread for being too wide.
Syndicate officials leading the deal, however, said that because it was a peripheral credit it was still worth playing on the safe side.
“While two deals from the same sector could lead to the risk of oversupply, I don’t think this is the case here, as the two credits are materially different,” a banker said.
A second banker said that the strength of the demand was evident in the fact that a wider credit index had not dampened the upbeat mood.
By 12:40 GMT the iTraxx Main was trading 2bp wider at 129.5bp while the Crossover widened by 10bp to 561.5bp.
Risk spectrum preferences
Strategists at CreditSights wrote in a note that the Telefonica deal looked relatively attractive, but did not appear to offer much more compelling value than its existing bonds.
Commenting on the TeliaSonera deal, the strategists said that they preferred peers that are “further out on the risk spectrum” as they offer a more attractive risk-to-reward trade-off for investors.
Telefonica was last in the market in October 2011, when it priced a long four-year €1bn deal at mid-swaps +310bp, supported by a book of around €2.4bn from over 270 accounts.Using pre-announcement levels on outstanding Telefonica deals, this suggested a new issue premium of around 30bp.
TeliaSonera was last in the market in September, when it attracted more than €1.8bn interest for a €500m long ten-year bond. It priced at mid-swaps plus 142bp, indicating a new issue premium of about 22bp versus the outstanding curve.
Last week, TeliaSonera forecast weak sales growth and flat core profitability in 2012 after reporting quarterly earnings just above expectations.
It posted Ebitda and excluding one-offs of SKr9.2bn against a forecast of SKr9.1bn in a Reuters poll.
Telefonica is due to report quarterly results on February 24, but late last year the company was forced to trim its dividend on a rocky growth outlook. In August last year, Standard & Poor’s cut its long-term debt rating on Telefonica to BBB+ from A– citing lower revenue and cashflow expectations.
Repsol reaps risk appetite
Beyond the telecoms sector, Repsol, rated Baa1/BBB/BBB+, on Tuesday mandated Barclays to lead a €250m tap on its 4.875% February 2019 issue. That deal priced at 240bp over mid-swaps and bankers away from it said that demand had been very healthy.
“Investors are not as risk averse as they were a few weeks ago and for many Repsol offers a healthy risk-reward ratio,” one banker said. Repsol was last in the market in early January, when it became the first peripheral corporate to access the market in 2012. The Spanish firm priced a €750m bond on the back of €5bn of demand, from more than 500 accounts via Barclays, Bank of America Merrill Lynch, HSBC, RBS, Societe Generale and Santander.
It represented a quick return to the market for the oil and gas company as it also printed one of the last corporate deals of 2011 – its first in more than two years.
One banker away from that transaction calculated the new issue premium at around 30bp, but one syndicate manager on the bond maintained that it was closer to 22bp.
Repsol also kicked off a separate non-deal roadshow in London on Tuesday, via Barclays Capital, BNP Paribas and Deutsche Bank.
The group is due to host and update investors in Paris on Wednesday and Frankfurt on Thursday, a source told IFR earlier this month.
Utility supply not over
Even after today’s telecommunications providers’ supply boost, bankers maintained that corporates from that sector would likely feature in primary markets for the remainder of February.
“Telecoms know that they can get deals done, as the sector is defensive a full of credits that are known and trusted,” one investor said. He added, however, that he also expected more oil, gas and energy companies to hit the market if the tone remains upbeat.
Polish oil and gas company PGNiG, rated Baa1/BBB+, on Monday announced that it had mandated BNP Paribas, Societe Generale and Unicredit to organise a general investor call to refresh investors’ memories on the information presented in a 2011 roadshow.
The company said it aimed to access the euro-denominated bond market in the near future. One market source told IFR last month that Italian utility Enel was planning on issuing a large retail investor-targeted deal in February via domestic banks.
A retail transaction is a cheaper way for Enel to raise funds and allows the company to target a different investor base from the one on which it focused last year when it issued a two-tranche €2.25bn bond in October 2011.
