Telefonica’s $964 Million Hybrid Bond Boosts Record Europe Sales

Telefonica SA (TEF) is selling pound-denominated hybrid bonds, boosting record sales of the securities that combine elements of debt and equity.

Spain’s biggest phone company is marketing 600 million pounds ($964 million) of notes through its Telefonica Europe BV unit, a person familiar with the matter said. Non-financial borrowers issued a record 28.7 billion euros ($39 billion) of hybrid debt in Europe this year, according to data compiled by Bloomberg.

Telefonica’s offer comes two months after the Madrid-based company debuted 1.75 billion euros of hybrid bonds to help fund its acquisition of a controlling stake in Royal KPN NV’s E-Plus German wireless unit. Hybrid notes allow companies to raise debt with less risk of being downgraded because ratings companies typically count 50 percent of the securities as equity.

“Companies see a few benefits in selling hybrids as they support credit ratings and it’s cheaper than issuing equity,” said Chris Higham, a fund manager at Aviva Investors Ltd. in London. “Undoubtedly, the trend will continue next year as low rates, low defaults and growth picking up should be supportive.”

Telefonica’s perpetual notes, which can be bought back by the company after seven years, will yield 6.75 percent, according to the person. Standard & Poor’s rates the securities BB+, one step below investment grade.

A spokeswoman for Telefonica in Madrid, who asked not to be identified citing company policy, declined to comment on the bond sale.

The average yield on non-financial hybrid securities climbed to 4.6 percent from a record low of 4 percent reached November 2012, according to Bank of America Merrill Lynch’s global hybrid index.

Alliander Hybrid

The yield on Telefonica’s 7.625 percent securities fell 85 basis points to 6.8 percent since it priced on Sept. 11 while the yield on its 6.5 percent notes dropped 64 basis points to 5.9 percent, according to data compiled by Bloomberg.

Another borrower issuing hybrid bonds today is Alliander NV. The Arnhem, Netherlands-based energy company is planning to sell 500 million euros of securities that can be bought back after five years, according to a person familiar with the matter. The notes are rated A by S&P.

At the same time, Alliander is offering to buy back as much as 500 million euros of 4.875 percent hybrid notes it sold in November 2010. The yield on those securities jumped 76 basis points today to 3.6 percent, according to Bloomberg data.

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

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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