J Sainsbury opted to issue a £250m convertible hybrid bond alongside its well-flagged corporate hybrid on Thursday, in a bid to lower overall funding costs in a relatively untested sterling market.
One investor who attended the London leg of the roadshow, said price talk for a £500m size on the hybrid was coming with a 7% handle, and bankers away from the deal said the unrated sterling hybrid sector remains a risk for larger benchmark sizes.
“There was some uncertainty around the price at the full £500m mark, and Sainsbury’s are familiar with the convertible market. It was clear that pricing was going to be more favourable this way,” a lead on the deal said.
Mixing it up
After wrapping up the last of its meetings on Wednesday in Edinburgh, Sainsbury followed up on Thursday morning to start marketing an expected £250m perpetual non-call five hybrid at 6.75%.
“The 6.75% yield is a bit skimpy, so we’ll be passing. But I suspect they have enough real money buyers to jam this into. I would be surprised if it trades well in secondary,” one investor said.
Leads Deutsche Bank, Morgan Stanley and UBS later released guidance at 6.625% area on the back of a £900m order book, and followed this up with final terms of 6.5% on demand of £1.2bn.
The proceeds will address at least £250m of Sainsbury’s pension fund deficit, while the shortfall stood at £651m, according to the company’s preliminary results released on May 6.
Concurrently, Sainsbury launched a £250m perpetual subordinated convertible offering a coupon at a fraction of its other deal, at 2.5%–3%.
The conversion price will be set at a 30%–35% premium to the VWAP of the stock during bookbuilding.
The bonds are convertible until July 2021 when the coupon will also change to match that on the hybrids being issued today. And in six years time the supermarket will see the bonds in effect merge into £500m of matching hybrids.
In addition, Sainsbury’s Bank is expected to follow up next week with an inaugural 10-year non-call five-year sterling Tier 2 bond. HSBC, JP Morgan and UBS are on the top line.
