Sunday, 22 July 2018

IFR Top 250 2007: Syndicated approach pays

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The recent syndicated history of Greece in the public debt market is certainly impressive. The level of coverage on its most recent inflation-linked offering in April was almost three times the €3.5bn of securities on offer. While impressive in relation to similar offerings, such as France’s last inflation-linked tap which was less than twice covered the previous month, this is in keeping with the results that Greece has consistently achieved on its syndicated debt programme. Mike Winfield reports.

The A1/A/A rated Hellenic Republic has a funding requirement for 2007 of approximately €35bn, and as of early June had completed four syndicated deals, accounting for €17.5bn, the last of them a €5bn March 2024 conventional deal in late May. Adding in the auctions of five and 10-year paper already completed in February, April and late May, the borrower should have completed around 70% of its annual need by the summer break.

"There are likely to be four more auctions this year, which may consist of taps of our outstanding five and 10-year maturities, or of the 2024 maturity," said Spyros Papanikolau, director general at the public debt agency (PDMA).

There are several reasons for this solid reception. The first issue of the year, a €5bn 10-year deal, was launched in early January, and benefited from a change in Moody's credit outlook to A1 positive from stable as a result of strong growth and the ongoing decline in the country's public debt ratios.

The €3.5bn 2.3% April 25 2030 syndicated HICP-linked security issued in early April coincided with a similar reassessment of Fitch's ratings outlook for Greece to positive from stable.

In addition to these timely changes to the individual credit assessment of the sovereign, there has also been a more progressive improvement in the spread environment for peripheral borrowers this year. Ten-year euro swap spreads have widened from 24bp at the beginning of the year to around 26bp as of early June, and the Greece/ Bund differential has contracted to around 20.5bp from 29.5bp when the 10-year deal was launched.

The reception that the 10-year deal received was arguably part of the reason for the ongoing performance of the credit, orders exceeding €9bn for the security that was issued at Bunds plus 30bp. Participating in the 4.3% long 10-year deal were around 130 accounts, of which only around 17% were domestic.

At the beginning of February Fitch commented: "Greece's sovereign ratings have been well supported over the past decade by consistently strong economic growth, averaging almost 4%pa, almost double the EU25 rate of growth. This has permitted a strong increase in income per head, which continues to rise towards Western European levels."

The change to the ratings outlook followed a Treasury report that the country's debt to GDP ratio was improving as a result of a 26% upward revision to its nominal GDP data announced in September – but still to be confirmed by Eurostat. The PDMA said in May that it expected this revision to be cleared by July, or if not by September, pointing out that it was around six years since the last Eurostat audit of its national statistics. When approved, the effect of this revision will be to cut the Greek debt/GDP ratio to 80% and could set the stage for it falling below the levels of Germany within four years.

"The confirmation of this figure is thought to be taking so long because of the impact in will have on a number of factors such as Maastricht debt/GDP ratios," said Massimo Antonelli, assistant director of origination at ABN AMRO.

Against this backdrop the Republic issued its second syndicated deal, a €4bn long 33-year at Bunds plus 37.5bp. That deal saw 113 accounts in a book that eventually stood at €10.7bn of which 8% were domestic. At the time it was launched, the earlier 10-year deal had tightened to plus 26.5bp, an improvement of 3bp in the space of a month.

The third syndicated deal from Greece saw the addition of a new point on its inflation-linked curve, a 2.3% April 2030 issue upsized from €2.5bn to €3.5bn in response to demand. The issue was priced at the tighter end of the initial plus 30bp–34bp guidance to the OATei July 2032 issue, and attracted orders in excess of €10bn on the first day.

"The deal saw in excess of 110 orders totalling €10.2bn, €9.8bn of which was good at re-offer. This presented the opportunity to price at the tighter end of the guidance as well as upsizing the transaction to ensure good allocation to real money accounts," said ABN's Antonelli at that time. Distribution of the deal to accounts based in Greece fell to an all-time low at 4% with this transaction.

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