ICO still out in the cold as investors warm to Spanish risk
LONDON, Oct 22 (IFR) - Spain may be enjoying a purple patch in debt markets, but the positive tone did little to rekindle investor interest in state-guaranteed Instituto de Credito Oficial (ICO) on Monday.
The Spanish government agency, rated Baa3/BBB-/BBB, did not fully place a EUR1bn five-year bond, despite offering a 65bp pick up to the Spanish curve, and against the backdrop of a strong rally in Spanish government bonds which saw 10-year yields hit 5.25% on Friday, the lowest levels since March.
"ICO must adapt to the fact that from now on the can only print what the market will allow," said one bank managing the deal.
"There was some good international interest but the order sizes are still relatively small," he added.
Bankers said 98 investors participated in the deal, and that the leads - BBVA, Goldman Sachs, HSBC and JP Morgan - were left with a "very small residual position".
In the lead up to pricing the notes were bid five cents back from reoffer in the broker market indicating that there was insufficient investor interest.
ICO raised EUR4.75bn from three benchmark issues alone in January. In March, it added to that total, gathering over EUR1.75bn of orders for a EUR1.5bn four-year bond.
That deal however would prove to be its last for the next six months.
When the issuer returned to public markets in September, emboldened by the ECB's recently announced bond-buying programme for struggling peripheral countries, it was met with a very different response from investors.
ICO limped over the line, printing EUR600m for the May 2016 bond at mid-swaps plus 65bp. The outcome could have been worse had it not been for one large late order that saved some face for the issuer, said market sources.
At the time observers said the market had not fully decided on the premia ICO would have to pay to Spain, given that the sovereign would now benefit from the ECB firewall.
Its second underwhelming bond deal has confirmed for those detractors that the cost of buying a credit without this backstop will be far higher.
"There is demand for Spanish names, and there is definitely a price that they could get a decent size done, they just have to be prepared to pay for it," said one observing syndicate official.
Fortunately for ICO, the issuer has very little left to raise in the capital markets for the remainder of 2012, with its latest deal meaning it has hit its revised target level of EUR15bn-EUR16bn.
ICO was able to shave off EUR4-5bn off its funding target last month when the Spanish government took on more of the funding for its indebted regions.
That does not, however, rule out the possibility of the agency pre-funding for 2013.
"They may not need that much now, but the funding for next year will definitely be playing on the issuer's mind," said the syndicate banker. (Reporting By John Geddie; Editing by Alex Chambers)
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