KPN Leads Corporate Bond Declines in Europe as Issuance Stymied

Royal KPN NV, the Dutch phone company that scrapped its dividend to buy faster wireless networks frequencies, led declines in corporate bonds after it was cut by Fitch Ratings and as issuance stalled in the run-up to the holiday break.

The relative yield on the company’s 700 million euros ($920 million) of 5.625 percent notes due 2024 increased seven basis points to 237 basis points, the most since Nov. 20, according to Bloomberg generic prices, after it bought 1.35 billion euros of frequencies. The last European non-financial company to sell benchmark bonds in the single currency was Telecom Italia SpA (TIT), which priced a 1 billion-euro deal on Dec. 14.

“It’s the end of the year and a lot of investors have shut their books for the year,” said Simon Ballard, a credit strategist at National Australia Bank in London. “Secondary market volumes are very muted, which makes pricing very sensitive to headline risk.”

Phone companies are spending cash to upgrade their networks to accommodate smartphones such as Apple Inc.’s iPhone and handsets based on Google Inc.’s Android software, forcing them to cut or scrap dividends. Bond issuance has ground to a halt as investors head off on vacation or shun new deals to lock in returns that have reached 12.58 percent this year, according to Bank of America Merrill Lynch’s Euro Corporate Index.

Relative Yields

KPN’s purchase of wireless frequency triggered a downgrade from Fitch Ratings, which lowered the credit grade one level to the cusp of junk at BBB-. The company paid almost 1 billion euros more for the frequency than Fitch expected, the ratings firm said.

KPN, based in The Hague, said Dec. 14 that it won’t pay a final dividend for 2012 and that next year’s payout will be 3 cents a share, compared with its 12-cent interim dividend. Relative yields on the company’s 500 million euros of 4.5 percent notes due 2021 increased eight basis points to 215.7 basis points, the widest since Nov. 20.

Indexes of credit-default swaps held at, or close to, the lowest levels since mid-2011.

The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers fell 92.7 basis points to 149.5 at 12:50 p.m. in London, close to the 18-month low of 145 reached during trading on Dec. 6. The subordinated financials index fell 9.5 basis points to 250.8. A closing price at this level would be the lowest since May 20, 2011.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings fell 0.9 basis point to 461.6, holding close to the 17-month low it reached on Sept. 14.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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