April 30, 2013 / 8:50 AM / 4 years ago

UPDATE 1-Portugal Telecom poised to price seven-year euro bond

(Adds details, background, relative value information)

By Josie Cox

LONDON, April 30 (IFR) - Portugal Telecom, rated Ba2/BB, on Tuesday opened books on a new euro-denominated seven-year benchmark bond, banking on rallying markets over the last few days having boosted investor appetite for peripheral corporate debt.

The group started marketing the new paper with yield thoughts in the area of 4.875%, for pricing later on Tuesday via Bank of America Merrill Lynch, Banco Espirito Santo, BNP Paribas, Caixa and HSBC.

The bonds will be senior unsecured and will have Reg S documentation, which will also contain change of control clauses.

Portugal Telecom was last in the market in October last year, when it priced a EUR750m 5.5-year bond with a coupon of 5.875%, equating to a spread of mid-swaps plus 497.5bp.

That printed at a cash price of 99.47 and was bid around 108 in cash terms on Tuesday.

The company also has four other euro bonds outstanding, issued between June 2005 and January 2011 and maturing between February 2016 and June 2025.

The pre-announcement levels of those suggests a new issue premium based on initial price thoughts of approximately 35bp-40bp, bankers on the deal and observers away from the it agreed.

A relative lack of supply of paper from peripheral corporates, as well as the rarity of Portugal Telecom paper specifically, should support bookbuilding.

The last corporate bond from peripheral Europe came from Italy's Indesit on April 22, but that was sub-benchmark in size.

The last minimum benchmark-sized euro deal came from Gas Natural, rated Baa3/BBB/BBB-, in the form of a EUR750m April 2022 bond, issued on April 3. That priced with a yield of 4.25% on a EUR2bn book.

In late February, Portugal Telecom beat expectations with a 10% rise in quarterly net profit, helped by lower operating costs and a gain from disposals. Revenue, however, fell amid a deepening recession in its home market.

The company is due to report first-quarter 2013 numbers on May 23. (Reporting By Josie Cox; editing by Natalie Harrison and Philip Wright)

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