EDP Breaks 20-Month Deadlock as Peripheral Firms Sell Debt
Energias de Portugal SA sold the country’s first benchmark corporate bonds since January 2011 as companies in the euro-region periphery issue at the fastest pace in a year and a half.
Portugal’s biggest utility raised 750 million euros ($978 million) from five-year bonds after receiving orders worth 7.5 billion euros for the notes, according to Chief Financial Officer Antonio Mexia. Issuance across Europe surged this week with Renault SA and Spain’s Iberdrola SA (IBE) helping push sales to as much as 12.7 billion euros on Sept. 10, the busiest day of offerings since January 2010.
Borrowers are tapping record-low yields in a wave of optimism spurred by Germany’s ratification of the euro-area bailout fund and bond-buying programs from the European Central Bank and the Federal Reserve. Companies such as Spanish oil producer Repsol SA and Telecom Italia SpA (TIT) sold more than 16.3 billion euros of peripheral bonds this month in the busiest two weeks for sales of the debt since March 2011.
“The ECB love-in has filtered its way through to the rest of the periphery,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “Portugal has been quietly getting on with its business and from a fundamental perspective EDP is a good business, so it’s not surprising to see it go first.”
The easing of Europe’s debt crisis that’s roiled markets for more than two years pushed European corporate bond yields down to 2.54 percent from 4.4 percent at the start of the year, according to Bank of America Merrill Lynch’s EMU Corporates index. The yield premium to benchmark German debt fell 122 basis points this year to 179, the smallest gap since July 2011.
The spread on Iberdrola’s 750 million euros of 4.5 percent five-year bonds narrowed 72 basis points to 342 basis points since the securities were sold on Sept. 10, according to data compiled by Bloomberg.
Repsol’s 750 million euros of 4.375 percent bonds due February 2018 yield 343 basis points more than German government debt, 37 basis points less than the Sept. 13 issue spread.
“Recent price action has suggested that many funds have been notably underweight these names as these new peripheral bonds have been tightening considerably in the secondary market,” Credit Suisse credit strategists led by Chiraag Somaia told clients in a note this week.
The sales from companies in Europe’s second-tier nations come amid a flood of offerings from borrowers across Europe, including the region’s biggest power generator Electricite de France SA and carmaker Daimler AG. Issuance reached 46.1 billion euros this month, Bloomberg data show.
EDP’s bonds were priced to yield 5.875 percent, data compiled by Bloomberg show, down from the 6.25 percent area in initial marketing. It’s the country’s first benchmark corporate issue since Portugal Telecom SGPS SA sold 600 million euros of bonds in January 2011, data compiled by Bloomberg show.
“This shows the international credibility of EDP and the improvement of Portugal’s risk,” EDP’s Mexia said in a telephone interview. “This will open the path for other Portuguese companies.”
The Lisbon-based utility’s existing 4.75 percent bonds due 2016 reversed an early decline, rising 0.04 cent to 98.16 cents on the euro to yield 5.27 percent. The yield spread on the notes narrowed 1 basis point to 497 basis points.
“I think Portugal Telecom could also issue a bond in due course, there are only a few large Portuguese companies that issue bonds,” said Normen Fritz, a fund manager at Union Investment Privatfonds in Frankfurt.
To contact the reporter on this story: Hannah Benjamin in London at email@example.com