Peripheral European corporate bond supply surges

Tue Feb 18, 2014 5:11am EST

Related Topics

* Spanish corporate bond issuance up 45% in 2013

* GIIPS issuance up 22% versus 2012

* Hunt for yield ensures additional supply is absorbed

By Josie Cox

LONDON, Feb 18 (IFR) - Spanish corporate bond issuance surged by 45% in 2013, spurred by investors' hunt for yield and banks' lasting hesitancy to lend in a sluggishly recovering peripheral Europe, Fitch said on Tuesday.

According to a report published by the rating agency, bond issuance from Greek, Irish, Italian, Portuguese and Spanish corporates rose by 22% last year, with Spain leading the field, while the ratio of bonds to total new debt edged up to 43%, from 40% in 2012.

"Increased bond issuance by companies in non-core countries, not just in absolute terms but also relative to bank borrowing, indicates that banks are unwilling or unable to support economic growth in the corporate sector in the slowly recovering periphery," strategists wrote in the report.

They added, however, that asset managers' hunt for yield - fuelled by overall improving economic sentiment compressing spreads on core paper - was enough for the uptick in supply to be absorbed.

According to IFR data, bond transactions from peripheral Europe, and especially Spain and Italy, were some of the most sought after, despite sometimes offering skinny or no premiums at all.

Italian motorway operator Atlantia, for example, in September last year printed EUR750m of eight-year bonds at mid-swaps 128bp, flat to secondaries, on a near EUR3bn book. The notes were quoted around swaps plus 109bp on Tuesday, according to Tradeweb.

In Europe as a whole, corporates raised a total of EUR446bn in bonds in 2013, down 6% on the prior year.

Fitch noted that following a strong start to 2014, the European corporate bond market is likely to see continued pre-financing activity and deepening of the market with more new issuers seeking greater funding diversity.

"ECB stress tests will continue to suppress bank risk appetite for lending," Fitch said. (Reporting By Josie Cox)

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