Surfing the right waves
In an unpredictable year and a market defined by feast and famine, some stood on the sidelines waiting for others to take the plunge. Thin issuance and small fees meant a healthy equity-linked business required consistent activity despite the choppy waters. BNP Paribas was there more often than any other, making it IFR’s EMEA Structured Equity House of the Year.
After a tough 2015, when BNP Paribas led the European equity-linked league table but disappointingly low issuance across the market precluded an IFR award, the French bank comfortably maintained its top position from the beginning of the awards period.
In the last week of November 2015, the bank did three deals in one week, comprising FCT’s €150m exchangeable bond into Iren, Brenntag’s US$500m seven-year bond plus warrants and a US$1.2bn seven-year synthetic for Total, the last two executed on the same day. It set the tone.
BNP Paribas was in the flow consistently, absent only in the typically thin months of December and August – the latter because the team was in the US for Liberty Media’s US$650m exchangeable into Charter Communications and the US$480m IPO of the bank’s US regional banking unit First Hawaiian.
“To have an accurate view of appetite and market conditions, you need to be constantly in the market and speak to investors on a permanent basis, as this is the key to success,” said Thierry Olive, global head of ECM. “This is the fourth consecutive year where BNP Paribas has printed more deals than its peers.”
“Market conditions were so volatile that we constantly needed to adapt,” said Thierry Petit, head of equity-linked for EMEA, citing the UK’s referendum on EU membership and the ECB buying corporate bonds.
The bank led seven out of 10 non-dilutive convertible bonds, commonly known as synthetics, which are equivalent to straight bonds but pay lower coupons. Ensuring blue-chip names such as Total, Telefonica, LVMH and Eni received better funding terms meant pushing aggressive pricing on investors. Not all deals were easy, with Telefonica and Eni requiring tweaks to get done, but they still secured a saving.
A €375m synthetic for French oilfield services company Technip was executed in late January on the same day Brent dropped below US$28. An uptick in oil prices and Technip’s share price then prompted a €75m tap at 110.5% of nominal value in early March.
“When the market conditions improved, we did a tap to optimise the arbitrage [versus bonds],” said Petit.
As synthetics ran out of steam in the spring, the bank listened to investor calls for more vanilla issuance. “Equity-neutral CBs are very expensive and investors were very happy with the names we brought, but there is limited chance of making money and they said they wanted better returns,” said Olive.
The switch was made to liability management exercises, issuing new paper to finance the buyback of more costly outstanding CBs. BNP Paribas ran three out of the six such trades that came to market either side of the summer break, including two repeat issuers that had not previously employed the bank. German packaging group Kloeckner also returned to the market with a vanilla CB in September, employing BNP Paribas as a lead for the first time.
While innovation was rare, providing the right structure and advice in tight market windows was key. BNP Paribas led two of three combo deals in the period, where a large illiquid stake was monetised through an equity placement alongside an exchangeable bond, including a clean-up for Airbus on its 23.6% stake in Dassault Aviation.
With a daily trading volume of around €3.5m, selling a stake worth €1.6bn would typically involve a number of heavily discounted selldowns and an ongoing overhang – a €1.64bn sale by Airbus in 2015 came at a 17% discount and failed either to relieve the overhang or improve liquidity.
The solution was a €1.1bn exchangeable bond and concurrent €784m accelerated bookbuild, with the former pricing at a yield-to-maturity of –0.73%, the second most negative yield achieved in EMEA equity-linked, and the equity portion at an incredible 2.1% discount.
“The main objective was to max out the size of the monetisation, and we did that by combining the two last trades into one while reducing the discount and keeping investors happy,” said Olive. “When you build this dynamic, everyone is happy.”
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