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UPDATE 1-AB InBev wows market with $7.5bn bond offering
July 11, 2012 / 6:51 PM / 5 years ago

UPDATE 1-AB InBev wows market with $7.5bn bond offering

By Danielle Robinson and Andrea Johnson

July 11 (IFR) - AB InBev wowed the market on Wednesday with a jumbo USD7.5bn bond offering, which drew more than USD30bn of orders from investors who have been piling into US dollar corporate bonds.

The global beverage giant, which makes iconic beer brands including Budweiser and Stella Artois, plans to use the money to finish its merger with Mexico’s Grupo Modelo, maker of Corona.

AB InBev was inundated with orders for the deal, which consists of single-A rated bonds in four different maturities from three to 30 years.

It is the second-largest dollar-denominated corporate bond this year, and analysts said the massive order size underscored the appetite from investors shunning investment US Treasuries, whose rates are being kept low by the Federal Reserve.

“There is very strong demand for single-A high quality names like this,” Rob Crimmins, a senior portfolio manager at Guardian Life Insurance Company of America, told IFR.

“People love investing in well-known industrials,” he said.

So much money has been flooding into the US investment-grade bond market that a record number of corporate bonds are currently trading well above their par value.

In addition, many banks have been selling off their own inventories of existing bonds in order to comply with stricter capital controls imposed in the wake of the financial crisis.

That sell-off has clogged liquidity in the trading of bonds on the secondary market, leaving new issues as the only sector where yield-starved investors can buy bonds in bulk.

The AB InBev issue was first talked of on the market at around 30basis points wider -- that is, with more yield for investors -- than where comparable bonds from Coca-Cola trade.

Initial thoughts on the three, five, 10 and 30-year bonds were respectively mid 60bp area, mid 90bp area, 125bp and 150bp.

Official spread guidance was then tightened 15-25bp from those levels to price talk of around 55bp, 85bp, 110bp and 125bp.

Even so, orders kept pouring in, taking the final order book to more than USD30bn. The deal was led by Bank of America Merrill Lynch, Barclays, Deutsche Bank and JP Morgan.

It was the second-largest issue this year after a nearly USD10bn deal from United Technologies in May. The AB InBev offer was expected to price later on Wednesday.

AB InBev plans to use the proceeds to fund the acquisition of the piece of Grupo Modelo that it does not already own, concluding a merger that creates the biggest company in the global beer industry.

The companies said two weeks ago that AB InBev would acquire the remaining stake for USD 9.15 per share in cash, in a transaction valued at USD20.1bn

“Together we will be the leading global brewer, with top brands around the world and positions in some of the fastest growing countries,” said Grupo Modelo Chairman and CEO Carlos Fernandez.

The new bond is the first of what is expected to be a flurry of M&A-related debt offers in the second half of 2012, as companies replace short-term loans with longer-term borrowing.

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