Events in Gaza and the Ukraine saw the iTraxx suite edge wider ahead of the weekend and are continuing to dampen sentiment, while the earnings season for European corporates is also looming ever closer on the horizon.
Just three borrowers priced bonds last week – Czech national gas distributor Net4Gas with euro and koruna-denominated deals, and Dutch property company Vesteda and Deutsche Bahn with €300m trades.
The pipeline will remain thin for the rest of the month as companies prepare their second-quarter numbers, according to ECM Asset management.
Those known to be considering issuance this week include Royal Mail and Italian construction firm Maire Tecnimont.
The former faces further scrutiny as French competition authorities announced an investigation last week over allegations the company’s European parcel operation breached antitrust laws.
The fine, if realised, could lead to losses of up to 10% of the company’s global turnover, according to one investor close to the deal.
Rubbing salt on its wounds, the postal service will face more pressure from shareholders on Thursday when it hosts the first annual meeting since its privatisation in October 2013.
The ongoing controversy is expected to impact the pricing of its first bond later this week, according to the investor.
The source said the French investigation will give potential buyers the opportunity to push back on the deal’s pricing, especially if it falls to sub-investment grade, and that his firm has already requested coupon step-ups in such an eventuality.
The investor added that Royal Mail is guiding for a 4%–6% decline in its mail volumes, but in other countries like the Netherlands, volumes have been dropping 10%–12% for the last two years.
“With a high fixed cost base, this obviously has a direct impact on earnings and cash flows. I see it more as a protection against a downside scenario.”
Royal Mail has two parts to its business: mail and parcels. Despite the parcels division growing, its mail business is in structural decline.
Leads on the trade are BNP Paribas, JP Morgan Cazenove, RBC and RBS.
Meanwhile, unrated Italian construction firm Maire Tecnimont is marketing its debut Reg S debut via Credit Suisse, IMI, MPS, and UniCredit this week.
The meetings kicked off in Milan last Friday, moved to London today, and continue in Paris and Switzerland tomorrow, one of the leads on the deal said.
Initial price thoughts are expected later this week
