Europe’s High-Grade Bond Sales Slow as Firms Recover From Pandemic

Europe’s corporate-debt issuance market looks set to cool in the second half of the year, as the recovery from the pandemic curbs new sales.

High-grade companies have raised about 157 billion euros ($187 billion) of new bonds in the region so far this year, about half the volume priced in the first six months of 2020. That’s slashed their share of first-half European debt sales to less than a sixth from more than a quarter a year ago.

The slowing pace suggests the days of hectic issuance seen during the height of the coronavirus crisis may be over. As the economic rebound takes hold, it could get even harder to sustain bond sales in the second half. Already, cash-rich companies have switched out of survival mode, while resurgent inflation is threatening to push borrowing costs higher.

“It is unlikely this is going to be another blockbuster year,” said Helene Jolly, the head of EMEA investment-grade corporate syndicate at Deutsche Bank AG in London. The bank expects issuance in the second half of the year to be “in line” with levels seen in pre-pandemic years, she said.

Europe’s High-Grade Bond Sales Slow as Firms Recover From Pandemic

Investment-grade corporates sold almost 400 billion euros of bonds for the whole of last year as they sought to navigate the pandemic, according to data compiled by Bloomberg. The bumper volumes made the year an outlier for supply compared with 340.5 billion euros and 245 billion euros sold in 2019 and 2018, respectively.

“Last year was very, very active,” said Mark Naur, a credit strategist at Danske Bank A/S. “We have seen supply start to somewhat normalize in recent months and seem to have passed the peak by now.”

Back Seat

Corporates have taken a back seat to public sector issuers seeking to fund virus-recovery programs. Roughly half of the region’s syndicated issuance has come from sovereigns, supranational institutions and national agencies, including the European Union, Italy and Spain.

Pandemic Pushes Sovereign Debt Deals in Europe to Record: Chart

The slowdown in investment-grade issuance has prompted Societe Generale SA to cut its full-year sales forecast to 330 billion euros. It was previously in the 360 billion-370 billion euros range, the bank’s head of fixed income research Guy Stear and head of European credit strategy Juan Valencia wrote in a note.

Europe’s High-Grade Bond Sales Slow as Firms Recover From Pandemic

Attractive Market

As companies exit the pandemic, an increase in financing needs could give a limited boost to sales.

“Given we are in an economic environment where there are strong expectations of economic recovery, financing will be mostly driven by M&A, share buybacks and the fact that companies believe that conditions for funding may deteriorate,” said Marc Baigneres, head of Western Europe, Japan & Australia investment-grade finance at JPMorgan Chase & Co.

Still, European corporates -- unlike U.S. peers -- “are not very share-buyback oriented” and at the moment there are only a limited number of loans backing M&A that will require refinancing, Baigneres said. German real estate company Vonovia SE was one of the only few investment-grade issuers to raise money to fund acquisitions in Europe this year.

The European Central Bank’s assurance that any reduction in monetary support will be well communicated is keeping rates low for the moment.

“The ECB continues to make the right noises, and I expect would be very thoughtful about winding down any program in an orderly manner,” said Deutsche Bank’s Jolly. “Any level of supply that needs to come to the market should be well absorbed.”

Europe

The pace of Europe’s primary market remains robust, with 11 issuers offering at least 7.86 billion euros of bonds on Wednesday.

  • Latvia, Cameroon, Turkey and the Belgian region of Wallonne are among the public sector issuers offering euro-denominated notes on Wednesday, while UniCredit SpA is marketing Additional Tier 1 debt two days after it sold inaugural green notes
  • Europe’s rescue fund EFSF sent a request for a proposal to banks for a transaction in week of July 5
    • “We will continue to see a good pace of issuance from September onwards, particularly the public sector space where we have seen a huge increase of issuance over the last two years,” said Asif Sherani, managing director and head of debt capital markets syndicate for EMEA at HSBC Holdings Plc. “For sovereigns, we expect some downward revisions because the EU next generation funding has kicked off and that will provide some support,” he said
    • HSBC’s Sherani added that more oil and gas companies will offer sustainability-linked bonds following a sale from Spanish oil major Repsol on Tuesday

Asia

Borrowers in the Asia-Pacific region are closing out what has already been a strong month for offshore issuance, with SoftBank Group Corp.​​​​​​ leading the line-up of deals.

  • The Japanese technology giant is offering notes in dollars and euros, while renewable energy firm Vena Energy Capital Pte Ltd is marketing U.S. currency notes
  • The state energy company of Qatar has started the sale of what could be the biggest emerging-market bond so far this year, as it seeks to raise output of liquefied natural gas and cement its domination of the market

  • APAC’s debt sales in dollars and euros have already topped the equivalent of $50 billion this month, and are running at record pace in 2021

U.S.

Salesforce.com Inc. wrapped up an $8 billion bond sale Tuesday to fund its $27.7 billion acquisition of Slack Technologies Inc., a deal designed to help the workplace communications platform reach a wider swath of corporate employees.

  • Compania Inmobiliaria y de Inversiones Saga SpA filed for Chapter 11 bankruptcy protection in District of Delaware, court, according to a filing
  • Brazil’s government joined the push by emerging-market borrowers to lock in low dollar borrowing costs with a two-part bond sale

    • The country priced $1.5 billion in 10-year bonds at a yield of around 3.875% on Tuesday. It also did a $750 million reopening of its 2050 line

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