REFILE-Strong corporate run to hold up in 2013
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By Josie Cox
PARIS, Nov 28 (IFR) - European treasurers and bankers said investment-grade corporate debt will likely remain the asset class of choice in 2013 as investors continue to prefer it to bank and sovereign bonds.
The corporate bond market will likely remain broadly insulated from the European financial crisis, despite downbeat macroeconomic headlines and ongoing fears over the availability of funding in other asset classes, speakers at a Euromoney Corporate Financing Forum in Paris said on Wednesday.
"Sovereigns and banks are no longer a safe haven," said Tron Vormeland, vice president and head of corporate finance at Statoil ASA, adding that corporates were therefore the natural alternative.
At the same time, conference participants also downplayed talk of a bubble forming in the corporate bond market.
Fred Zorzi, global head of syndicate at BNP Paribas, stressed that the market was still very rational, despite the sheer volume of supply over the past 12 months.
Investors are very aware of where they are putting their money and of the risks associated with the bonds that they do buy, he added.
So far this year, European corporate bond issuance in euros has reached EUR212bn, outpacing every year in the last decade except 2009, when companies rushed to build cash buffers in the wake of the sub-prime crisis in the U.S.
Despite the weight of supply this year, issuers remained upbeat about future funding prospects in the bond market.
CHANGED CORPORATE FUNDING MODEL
Corporate funding models have changed dramatically over the past two years as strict capital rules placed on banks have reduced their capacity to lend, pushing corporates into the bond market instead.
That trend will continue, said Zorzi.
"There has been a lot of talk about liquidity and regulation but let's not forget that in Europe at least, the market is still growing and everyone is still learning," Zorzi said.
"If we look to the United States, we can see that this type of model is sustainable. Despite a lot of uncertainty, we have seen really good performance in the bond market over the last months."
Several other treasurers emphasised the importance of weighing risks and approaching the right investors.
Emmanuel Rapin, group treasurer at unrated French media conglomerate Lagardere, highlighted the importance of niche markets and how they can contribute to the efficient diversification of funding operations.
"It's also about trust," he said, explaining that in the current market environment, characterised by volatility and headline risk, winning investor trust was key.
Lagardere printed a 4.125% EUR500m five-year bond in mid-October that garnered a book of EUR4.5bn, demonstrating that investor hunger for yield is helping even less known issuers and unrated names fund in the bond market at attractive levels.
Since pricing at mid-swaps plus 325bp, that bond has tightened by 60bp to trade around 265bp over.
Other lower rated issuers, including Fiat Finance & Trade and Italian gaming company Lottomatica, have also proved this week that investors are willing to move down the credit curve.
Fiat F&T, rated B1/BB-/BB, attracted a EUR1.1bn book for a EUR400m tap on Monday, while Lottomatica, rated Baa3/BBB-, is set to price a EUR500m long seven-year bond on Wednesday with no concession on the back of a EUR5.5bn order book. (Reporting by Josie Cox, additional reporting by Natalie Harrison in London, editing by Alex Chambers and Julian Baker)