January 11, 2013 / 1:50 PM / 5 years ago

Iberians dominate peripheral bond comeback

* Spanish, Portuguese borrowers storm market as spreads ratchet in

* Bankia among banks tipped to follow

* Caixa Geral, Sabadell and Red Electrica end the week on a high

By Aimee Donnellan and Josie Cox

LONDON, Jan 11 (IFR) - Iberian issuers have stormed debt capital markets in the first two weeks of 2013, fuelling hopes that lower tier issuers from other corners of the periphery will be able to follow suit as investor confidence picks up.

National champions such as Telefonica, Gas Natural and BBVA have built on well-received bond deals in the fourth quarter to secure even tighter pricing this month, and as Bankinter, Caixa General, Sabadell and Red Electrica emerged on Thursday and Friday, syndicate bankers predicted that there is plenty more supply to come.

Issuers including Bankia and Santander Totta are among those tipped by syndicate bankers to make a comeback.

“Everyone is focused on buying something that will bring them strong yield returns,” said a syndicate banker.

“There aren’t too many correction triggers ahead that could pull us off course, which is helping to drive momentum for names like Bankia.”

A relentless spread rally since mid-November, which has driven corporate and financial credit indices around 25% and 30% tighter, respectively, has enabled even more troubled issuers to fund.

Spanish agency FADE - which twice had to pull deals in 2012 - saw its 4.125% EUR1bn four-year issue more than twice subscribed this week.

Not including Friday’s deals, Spanish and Portuguese issuers this year have sold more than EUR5bn-worth of bonds - o r just under a quarter of the EUR21.5bn total supply - in the corporate and FIG markets.


Bankia’s secondary covered bond spreads have tightened by around 170bp over the past two months, and according to one market source, the recently recapitalised bank is currently monitoring the market ahead of a potential bond.

Some deals have sparked fears that the market is getting ahead of itself - signalled in particular by enquiries for Bank of Ireland’s CoCo and big rises in illiquid long-dated bonds such as Telecom Italia’s 2055s.

Subordinated financial bonds have also rallied sharply, including a nine point rise in Banca Popolare di Milano’s 2018s.

The strong demand for Spanish senior bank debt, however, is more logical, some experts argued.

Senior bank debt has generally benefited from the ECB’s LTROs, and losses have not been imposed on senior bank bondholders when stressed banks have been restructured, they said.

“The fact that we’ve seen reverse enquiry for a risky CoCo instrument for the Bank of Ireland, and the fact that long dated 30-year corporate bonds jumped a lot in price already this year is food for thought,” said Barnaby Martin, a credit strategist at BofA Merrill Lynch Global Research.

“It shows that the credit market is moving at light speed in some areas.”


The deepening liquidity in the market has even extended to Portuguese credits, as Banco Espirito Santo (BES) and Caixa Geral made a return in the financials sector, but in general, syndicate bankers say investors are still differentiating between issuers.

That was evident in the stronger demand and better secondary market performance seen for BES - a bank deemed to be a systemically important financial institution - than the demand for second tier Spanish issuer Banco Popular Espanol.

“Investors are not buying blindly but they are certainly opening up their credit lines to peripheral names,” said Ralf Grossmann, head of covered bond origination at Societe Generale.

“Sentiment is clearly improving and I think we are getting to the point where Spanish and Italian names are starting to retrace spreads to their core counterparts.”

BES, Portugal’s second largest private bank by assets, attracted a EUR3bn order book for its EUR50m five-year deal, while Banco Popular saw just EUR1.3bn-worth of demand for its EUR750m 2.5-year trade.

However, international demand for both transactions was strong at around 90% and 72%, respectively - an encouraging sign that Iberian issuers are no longer dependent on domestic demand.

The decision by some issuers to hold off rather than pay up has also worked in their favour.

Caixabank - Spain’s largest savings bank - staged a return to the FIG market following a hiatus of more than two years to sell a blow-out EUR1bn long three-year senior unsecured bond at mid-swaps plus 285bp on the back of orders in excess of EUR5bn.

“Caixabank clearly found the opening it was looking for,” said Armin Peter, head of FIG Flow syndicate at UBS.

“We are somewhat back to the good old days where spreads are starting to reflect the true value of the bank paper.”


In the corporate space, analysts at Bank of America Merrill Lynch point out that peripheral corporates are now only 90bp wider than core corporates, and some cyclicals have ripped tighter.

This peripheral magic assisted both Spain’s Telefonica and Gas Natural, both rated Baa2/BBB/BBB+, to bring stand-out 10-year transactions to the market this year already.

The former’s deal, which marked the first from a corporate peripheral borrower this year, attracted EUR10bn in demand, sending a positive signal to the company that is bracing itself for a swathe of looming redemptions.

The coupon of 3.987% represented the lowest on a 10-year bond from a peripheral corporate borrower in around eight years, a lead on the deal said.

On Friday, Red Electrica prepared to price a EUR400m nine-year deal that was already six times oversubscribed within two hours of bookbuilding.

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