Credit Agricole Squeezed With BNP by Slide in French Bond Sales
Credit Agricole SA (ACA) and BNP Paribas SA, the top arrangers of French corporate debt sales this year, are girding for a slowdown in 2012 after companies raised the least amount in the second half since 2007.
Bond sales by French companies have fallen 22 percent since July 1 compared with the year-earlier period to 62.6 billion euros ($81 billion), according to data compiled by Bloomberg. The market may shrink more as Standard & Poor’s considers whether to strip France of its AAA credit rating and Europe’s second-biggest economy enters a recession.
“2012 will be challenging,” said Bernard du Boislouveau, co-head of financial institutions debt capital markets at Credit Agricole CIB in Paris. “Macro risk is combined with the sovereign-debt risk and that’s far from being resolved.”
Credit Agricole CIB, the corporate and investment banking unit of France’s third-largest bank, was the biggest arranger with about 20 percent of the market in the period, followed by BNP Paribas with about 13 percent, Bloomberg data show. Natixis was in third place ahead of Societe Generale SA. (GLE)
“The second half was complicated because of high levels of volatility,” said Felix Orsini, co-global head of debt capital markets corporates origination at Paris-based Societe Generale. “We are telling issuers to remain cautious. Markets are very nervous.”
Excluding sales by banks and financial companies, Societe Generale took the top position, managing 2.5 billion euros of corporate debt in the second half, or 15 percent of issues.
Capping borrowing further, French companies bulked up in 2009, raising the most funds through bond issues since Bloomberg began compiling such data in 1999. They raised 231 billion euros that year.
“Companies have a lot of cash and there has been less M&A activity,” said Laurent Attali, head of debt capital markets for French corporates at BNP Paribas (BNP) in Paris. “If companies needed to finance, they have been able to do so, but for those that have already done it, they didn’t face the pressure to finance in a volatile market.”
Other avenues for raising funds have closed off. France’s benchmark CAC 40 Index (CAC) has lost 18 percent this year as the euro area’s debt crisis spread to Italy and Spain and economic growth slowed. About 13 percent of value has been wiped from world markets since the start of the year. French companies raised 5.4 billion euros from the stock markets in 2011, the smallest amount since Bloomberg started tracking the data in 1999.
Although that may have driven some companies to the bond market in the first six months of the year, debt capital market sales slowed in the second half, the bankers said. That is particularly true for financial institutions, with BNP Paribas and Societe Generale saying they haven’t tapped the bond market since the summer. Credit Agricole declined to comment on when it last sold bonds.
French financial institutions had the biggest sovereign and private debt holdings in Europe’s five troubled economies -- Greece, Portugal, Italy, Ireland and Spain -- at $681 billion as of June, according to the Basle, Switzerland-based Bank for International Settlements. French banks’ credit ratings were cut this month by Moody’s Investors Service, which cited funding constraints and a worsening European debt crisis.
“Banks are highly correlated with the macro environment and the sovereign-debt crisis, so volume has declined,” said Credit Agricole’s du Boislouveau. “Since June, the market has been hobbling along on one leg.”
Du Boislouveau said banks and financial companies raised about 40 billion euros a month between January and May. Issuance has since more than halved to 17 billion euros a month, he said.
Vinci, Vivendi (VIV)
Non-financial corporates that raised funds in the bond market in the second half include Vinci SA (DG) and Vivendi SA.
Vinci, Europe’s biggest builder, on Dec. 8 sold 750 million euros of bonds due in February 2017 priced to yield 230 basis points more than the benchmark mid-swap rate. BNP Paribas, Credit Agricole, Natixis and Societe Generale were among arrangers of the deal.
Vinci’s yield was almost triple the 88 basis points above the mid-swap rate its wholly owned unit Autoroutes du Sud de la France paid last year to sell 500 million euros of bonds due in April 2020.
Vivendi, owner of the world’s largest music and video-game companies, on Nov. 22 sold 500 million euros of bonds due in November of 2018. They were priced to yield 365 basis points over the mid-swap rate, with BNP Paribas, Credit Agricole and Societe Generale among banks arranging the deal.
That’s more than double the yield of 125 basis points above the mid-swap rate that Vivendi paid last year to sell 750 million euros of bonds due in March 2017.
Investors were more willing to buy investment grade debt in the second half, although increasing volatility meant that windows to complete the operations were narrow, said Societe Generale’s Orsini. For example, French companies completed 12 sales during a seven-day period in September, he said.
“We’ve often had to manage several operations in one day,” Orsini said. “With market windows becoming shorter, the execution procedure has accelerated and deals have to be wrapped up quickly. There are also fewer long-term operations and that is linked to the crisis.”
With questions emerging about the survivability of the euro and markets roiled by the two-year-old debt crisis, investors have opted for shorter-term debt.
Globally, only 3 percent of deals this year have been bonds of more than 10 years, compared with 13 percent in 2010, according to Societe Generale.
France’s credit outlook was cut by Fitch Ratings on Dec. 16 on the “heightened risk of contingent liabilities” from the escalating euro-region crisis. S&P and Moody’s are reviewing France’s top rating. The French economy is probably already in a recession that will last through March, national statistics office Insee said this month.
That may mean only the least risky companies will be able to sell debt next year, said Credit Agricole’s du Boislouveau.
“Investors have a lot of liquidity to put to work,” he said. “They have to find support for quality investments. There will be deals, but the eligible names will be few.”
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