Philip Morris Markets Bonds in Europe as Borrowing Costs Decline

Philip Morris International Inc. is selling bonds in euros as the cost of borrowing in the currency approaches the lowest in nine months.

The world’s largest publicly traded tobacco company is selling 1.75 billion euros ($2.4 billion) of seven- and 12-year notes, according to a person familiar with the matter. The average yield on investment-grade corporate debt in euros has fallen to 1.9 percent, within one basis point of the lowest since May, Bank of America Merrill Lynch index data show.

“There’s an opportunity for issuers in euros,” said Geraud Charpin, a fund manager at Bluebay Asset Management Ltd. in London which oversees $55 billion. “Outright yield levels and strong demand for investment-grade debt in Europe should continue to attract foreign issuers to the euro market.”

Philip Morris, based in New York, is selling bonds after European Central Bank president Mario Draghi said yesterday policy makers are ready to add stimulus if deflation risks rise. While euro-area consumer prices in January increased more than economists initially estimated, climbing an annual 0.8 percent, it’s still less than half the bank’s 2 percent target.

The average yield discount for borrowing in euros compared with U.S. dollars has widened 54 basis points in the past year to 1.26 percentage points, according to Bank of America Merrill Lynch index data.

The cost to exchange euros for dollars dropped to a six-year low. The price using five-year cross-currency basis swaps fell to 5.8 basis points below the euro interbank offered rate on Jan. 16, Bloomberg data show and is now 7.3 basis points below the benchmark.

Bond Pricing

Philip Morris is marketing 750 million euros of seven-year notes to yield 65 basis points more than the benchmark mid-swap rate and 1 billion euros of 12-year bonds at a spread of 85 basis points, said the person, who asked not to be identified because they’re not authorized to speak about it.

The company will use the proceeds for working capital, repurchasing stock, refinancing debt or for general corporate purposes, the person said.

Philip Morris sold seven-year euro bonds in March to yield 55 basis points more than swaps and 12-year notes at a spread of 83 basis points, data compiled by Bloomberg show.

Also in European credit markets today, Pohjola Bank Plc is selling 1.5 billion euros of seven-year bonds and three-year floating-rate notes, a person with knowledge of the matter said.