Siemens Leads Bond Surge After Slowest February Since 2010

Siemens AG (SIE), Europe’s biggest engineering company, led a resurgence in corporate debt sales after the slowest February in three years.

Siemens sold $3.4 billion of bonds in euros and dollars today in its first deal since August, while carmakers Daimler AG (DAI) and PSA Peugeot Citroen (UG) also returned to the market, according to data compiled by Bloomberg. Non-financial companies issued 10.4 billion euros ($14 billion) of bonds in euros and pounds in February before today, down from 33 billion euros last month.

Bond issuance is recovering in Europe after a hiatus caused by the earnings season and uncertainty over Italy’s elections. Munich-based Siemens is looking at potential acquisitions and has held talks with Italy’s Finmeccanica SpA (FNC), which is trying to sell a stake in power-plant construction unit Ansaldo Energia.

“We should, or could, have finished off the month in subdued fashion, but primary sparked into life with Siemens, Daimler and Peugeot tapping the markets,” said Suki Mann, the head of credit strategy at Societe Generale SA in London. “Issuance today makes the monthly supply figures look very respectable, but fails to hide the fact that it has still been a very light month for issuance overall.”

Euro Bonds

Siemens issued 1.25 billion euros of senior bonds due 2021 that were priced to yield 35 basis points more than the swap rate, Bloomberg data show. It also sold 1 billion euros of 2028 notes at a spread of 70 basis points and $500 million of bonds maturing in 2018 priced at 65 basis points.

Philipp Encz, a spokesman for Siemens, declined to comment on the fundraising.

The German engineering company has 1.4 billion euros of bonds coming due next year out of a total debt load of 15.6 billion euros, according to data compiled by Bloomberg.

With some of the hurdles to issuance now out of the way, European companies are starting once again to take advantage of near record-low borrowing costs to raise money. The extra yield that investors demand to hold euro-denominated company bonds instead of benchmark government debt fell to 115 basis points from 121 at the end of January, according to Bank of America Merrill Lynch’s Euro Non-Financial Index.

“Companies are now coming out of their blackout periods and finding that, despite the uncertainty surrounding Italian politics, market conditions are actually quite favorable for issuers with the right profile,” said Hans Lorenzen, a strategist at Citigroup Inc. in London.

Peugeot Sale

Peugeot, Europe’s second-biggest carmaker, sold 1 billion euros of five-year bonds that were priced to yield 7.5 percent, after a 600 million-euro sale of 2015 notes last June. Today’s sale attracted orders of 4.3 billion euros and will help the company’s “financial security,” the Paris-based carmaker said in a statement.

“Despite poor operating performance and an unconvincing recovery plan, the liquidity cushion that has been built up through 2012 on top of implicit and explicit government support should help buoy investor demand for the new bond issuance,” analysts at New York-based CreditSights wrote in a client note before the French auto company’s transaction was completed.

Stuttgart-based Daimler, the world’s third-biggest maker of luxury cars, raised 1.5 billion euros from a sale of bonds due July 2016 and March 2023, Bloomberg data show. The deal is its first benchmark fundraising in the currency since it sold 750 million euros of debt due 2020 in November.

Profits Decline

As well as eyeing potential acquisitions, Siemens, which reported a decline in profits and rising costs for the three months through December, is planning to offload units such as airport luggage systems, mail automation and water technology. Shareholders already approved the spinoff of the underperforming Osram lighting unit.

Chief Executive Officer Peter Loescher, on his second five- year term, has come under pressure to boost profitability and refocus the engineering company after deals that he supervised soured. A push into more environmentally friendly energy generation has also led to spiraling costs.

“What you currently see are the very defensive issuers that take benefit from the lower yields over the last days and that aren’t affected by the Italian situation,” said Oliver Woyda, a money manager who helps oversee about 20 billion euros at Deka Investment GmbH in Frankfurt.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

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

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