UK supermarket J Sainsbury is targeting a £450m–£500m perpetual non-call five hybrid at a yield of around 7%, according to an investor who attended the London leg of the roadshow.
The investor meetings are due to wrap up around midday on Wednesday, with IPTs expected around the same time and pricing scheduled for Thursday.
“They were looking to raise up to £500m, but this may be curtailed slightly as they were hoping to get traction at a 6 handle, but considering there are other deals around, the high 6% area is arguably through fair value,” the investor said.
The company met investors on Monday and Tuesday in London, then moved to Edinburgh on Wednesday.
“They thought it would be a prime time to issue the hybrid, as they expected to have the market to themselves, but it’s backfired slightly as we’re now seeing more activity than anticipated,” the investor said.
The proceeds will address around £250m of the supermarket’s pension fund deficit. The shortfall stood at £651m, according to the company’s preliminary results released on May 6.
Hybrid bonds are seen as a quick fix for companies facing up to the implications of IFRS accounting rules, which put pension deficits on balance sheet.
Hybrids, which receive 50% equity credit at the major ratings agencies, are also seen as a cheap alternative to tapping the equity market.
Deutsche Bank, Morgan Stanley and UBS arranged the meetings and will lead the deal, which will be unrated.
