Takeovers Seen Curing Greece Lull in Euro Corporate Bond SalesSelcuk Gokoluk and Sally Bakewell
Europe’s corporate-bond arrangers and investors are looking to acquisition deals to give the market a second wind as the deepening Greek debt crisis curbs issuance.
After the best start to a year since 2012, bond sales slowed during the second quarter as a selloff in credit markets raised borrowing costs. JPMorgan Chase & Co., the world’s biggest underwriter of corporate bonds, sees the pace picking up as companies fund takeover deals in the market.
“The uptick in M&A will be one of the main drivers of an increase in issuance after the lull,” said Jens Vanbrabant, the London-based head of investment-grade bonds at ECM Asset Management, which oversees about $4.6 billion. “There has been a backlog of deals building up because of Greece.”
Of 255 billion euros of investment-grade bond issuance this year more than 65 percent was sold in the first three months of the year, according to data compiled by JPMorgan. They predict sales will total as much as 460 billion euros by year end, according to JPMorgan.
M&A deals swelled to $428 billion in Europe in the past three months, the busiest second quarter since 2007, according to data compiled by JPMorgan. Global M&A volumes are on track to pass $3 trillion for the first time since 2007, with deals in Europe set for their busiest year in a decade, according to data compiled by Bloomberg.
“Market volatility tied to Greece has slowed issuance, but the good news is that confidence to make acquisitions is approaching levels last seen before the financial crisis,” said Ray Doody, the London-based head of European acquisition and leveraged finance at JPMorgan.
UniCredit SpA, which excludes bonds issued by financial companies, forecasts issuance will rise about 7 percent this year to as much as 326 billion euros from 2014.
Sales in Europe almost ground to a halt this week after Greece’s Prime Minister Alexis Tsipras walked away from debt talks and called for a referendum on the terms of the nation’s bailout. Of just two benchmark sales, the biggest was from U.S. life-sciences equipment maker Danaher Corp. for its purchase of Pall Corp.
In the past month, H.J. Heinz of the U.S. and France’s Cap Gemini SA were also among companies that used Europe’s bond market to help finance takeover deals.
Sales by U.S. companies rose, partially offsetting declining issuance from companies in the euro area. Companies including Coca-Cola Co. and BlackRock Inc. issued 73 billion euros of bonds this year, surpassing the 69 billion euros for the whole of 2014, according to data compiled by Bloomberg that goes back to 2009.
The average cost of borrowing for investment-grade companies in euros was 1.44 percent Thursday, according to Bank of America Merrill Lynch index data. That compares with 3.35 percent for similarly rated debt in dollars, the data show.
“Markets are still open, receptive and constructive from an investor perspective and companies are able to execute financing,” said Christian Reusch, co-head of global syndicate at UniCredit in Munich. “Investors are ready to put their money to work.”