Hellenic Telecom Offers to Pay Record Coupon on 5-Year BondHannah Benjamin
Hellenic Telecommunications Organization SA is offering its highest interest rate to lure buyers to the lowest-rated offering from a European peripheral company in at least seven years.
Greece’s largest phone company, known as OTE, will issue 700 million euros ($948 million) of five-year bonds paying a 7.875 percent coupon, according to a person with knowledge of the deal. The rate compares with the 7.25 percent that the Athens-based company pays holders of bonds it sold in 2011 that come due next year, according to data compiled by Bloomberg.
OTE, which is 40 percent owned by Deutsche Telekom AG, is selling bonds to redeem more than 1 billion euros of notes due this year and next, the person familiar with the deal said. The new issue is the first benchmark-sized offering from a Greek company since OTE’s sale in 2011, and follows Titan Cement Co. SA’s 200 million-euro issue of 8.75 percent 2017 bonds last month, data compiled by Bloomberg show.
“The coupon seems to be pricing in about a 60 percent probability of a Greek default, which seems too high,” said Stuart Stanley, a fund manager at Invesco Asset Management Ltd. in London, who oversees $3 billion of high-yield bonds. “Its rating doesn’t help bond investors who like the company but fear the sovereign risk.”
The bonds are being sold at a discount to yield 8 percent, the person said.
Bonds of companies in the euro area’s peripheral countries such as Greece, Spain and Italy yield 2.9 percent on average, Bank of America Merrill Lynch’s Euro Periphery Non-Financial index shows. That’s down from as much as 5.48 percent in June.
OTE, which is 10 percent owned by the Greek government, is rated Caa1 at Moody’s Investors Service, seven steps below investment grade. Speculative-grade, or junk, debt is rated below Baa3 by Moody’s Investors Service and BBB-by Fitch and Standard & Poor’s.