August 21, 2014 / 3:31 PM / in 3 years

UPDATE 1-Portugal to lengthen maturity profile with syndicated 15-year

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By Helene Durand

LONDON, Aug 21 (IFR) - The Republic of Portugal could price its longest dated issue since exiting a 78bn bailout in May as it seeks to lock in low financing costs.

The Ba1/BB/BB+ rated issuer said in July that if market conditions and demand for Portuguese bonds allowed, a new syndicated line would be considered in the third quarter, and a deal is now on the cards for early September.

“We want to take advantage of the low rates at the long end of the curve and lock in these yield levels,” an official at the IGCP told IFR.

“While rates are low in Europe, there are rumours that the Fed could hike rates later this year which could impact the market and we want to do a syndication earlier rather than later.”

The official also said that Portugal would likely overshoot the 3bn target it has left to raise for the rest of the year.

A new 15-year would be another milestone for Portugal as the longest deal it has sold since the crisis. The issuer tapped two bonds this year, adding 3.25bn to a June 2019 in January and 3bn to a February 2024 in February.

“A 15-year maturity would be the best for our purpose,” the IGCP official said. “We are still facing quite a lot of redemptions in the coming years and this will be a good way of moving our redemptions further down the curve.”


Portuguese yields spiked in early July after one of the country’s banks, Banco Espirito Santo, was engulfed in a scandal and finally had to be restructured in early August.

“I don’t think what’s happened with BES scuppered their chances of looking at syndication,” said a head of SSA debt capital markets. “In fact, Portugal has been doing rather well and while 10-year yields peaked to 3.8% when BES was solved, they are now back down to 3.3%”

Portuguese five-year yields have also performed well, rallying from just over 5% in January 2014 to a current 1.81%, well off the 2.4% level hit earlier this month.

Meanwhile a senior syndicate banker said that the main lesson from BES was that subordinated debt was fair game, and that the saga had not had a long-term impact on Portugal.

“The regulators communicated well on BES that it was a one-off and unique situation and the market reacted positively to the solution that was found,” the IGCP official said.

Bankers believe the impact of the European Central Bank’s targeted longer term refinancing operation (TLTRO) could also be beneficial.

“I would expect the TLTRO to have a supportive effect on peripheral sovereigns, even if it’s for a shorter amount of time and until banks have to redeploy that money elsewhere,” the syndicate official said. (Reporting by Helene Durand, editing by Julian Baker)

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