French companies are monopolizing Europe’s bond market this month as they raise debt ahead of the presidential elections amid concern anti-business policies may drive up borrowing costs.
Vivendi SA, owner of the world’s largest music and video-game makers, led French companies in raising 2.5 billion euros ($3.3 billion), the only investment-grade corporate issuers in the market, according to data compiled by Bloomberg. Junk-rated carmaker Peugeot SA and unrated Galeries Lafayette SA, which has its flagship department-store in Paris, raised a further 1.1 billion euros.
The cost of insuring French company debt is at a three-month high ahead of the first round of voting this weekend and the final on May 6. Socialist candidate Francois Hollande, who is pledging higher taxes and delayed deficit cuts, leads rival President Nicolas Sarkozy by 16 points, according to a CSA poll this week.
“A new leader with the policies that Hollande is proposing is unlikely to endear the markets towards French names,” said Suki Mann, a strategist at Societe Generale SA in London. “The market will be more comfortable if Sarkozy wins and retains the status quo.”
Vivendi, owner of Universal Music Group and the Canal Plus pay-TV operator, issued 300 million of 4.75 percent nine-year notes on April 12, at 190 basis points over swaps. A spokesman did not respond immediately to an e-mail seeking comment. Vivendi is rated Baa2 by Moody’s, the second-lowest investment grade level, and BBB by Standard & Poor’s.
Hollande has called finance his “biggest adversary” and the European Union’s fiscal compact “a betrayal of French sovereignty and democracy”. He has pledged to introduce a variable corporate tax rate, which would rise to 35 percent from 33 percent for large companies, and an additional 15 percent tax on bank profits.
“Companies that are currently paying 250 basis points over swaps to print now would have to pay an excess premium of at least 50 basis points more to get it done in a new corporate tax environment under Hollande,” said Steven Mitra, a partner at LNG Capital LLP in London.
The Socialist leader has also promised to increase France’s minimum wage, cut the retirement age to 60 from 62 and introduce a 75 percent levy on earnings of more than 1 million euros.
“The most difficult period for the market is the gap between the presidential election and the legislative elections in June,” said Geraud Charpin who helps oversee $42 billion at BlueBay Asset Management Ltd. in London. “If Hollande is elected, his rhetoric will be leaning on the left to make sure the Socialists have a comfortable majority in the assembly.”
Peugeot, Europe’s second-biggest carmaker, raised 600 million euros of 5.625 percent notes due 2017 on April 3, with a spread of 412.5 basis points over swaps. “Peugeot looks for opportunities in the market on a permanent basis,” said a spokesman for the carmaker, who declined to be named citing company policy. The elections did not influence the company’s bond sale, he said.
RCI Banque SA, the banking unit of Renault SA, France’s second-biggest automaker, raised 650 million euros of 4.25 percent five-year bonds on April 18 at 290 basis points more than swaps.
“This new issue confirms the confidence of investors in the financial strength of the company and proves again the capacity of RCI Banque to regularly access the bond market,” Caroline De Gezelle, a spokeswoman for Renault in Paris, said in an e-mailed statement.