Italian Political Impasse Envelops Country's Corporate Bonds

(Bloomberg) -- Italian companies and their creditors paid the price on Tuesday for a hostile standoff between the nation’s populist politicians and its president.

Credit-default swaps on some of Italy’s best known names, including its biggest bank UniCredit SpA and insurer Assicurazioni Generali SpA, were among the worst performing in Europe’s bond market, according to data compiled by Bloomberg.

UniCredit’s 1 billion euros ($1.16 billion) of 5.375 percent bonds, which were quoted at face value last month, fell 3.5 cents on the euro to 88 cents on Tuesday. Long-dated notes of Telecom Italia SpA, its rival Wind Tre SpA and struggling contractor Astaldi SpA also fell.

“Even the best names are suffering,” such as international IT specialist Almaviva SpA, said Guillaume Vergelati, a broker at Octo Finances SA in Paris. The selloff is embracing “everything with an Italian flavor, especially the ones with low geographical diversification.”

Jean Pierre Mustier, the chief executive officer of UniCredit, sought to calm investors on Tuesday, telling Bloomberg TV that the euro zone’s third-largest economy won’t abandon the common currency. Bonds issued by state-owned Banca Monte dei Paschi di Siena SpA and Intesa Sanpaolo SpA also fell. Italian banks hold nearly 404 billion euros of the nation’s sovereign bonds, according to European Central Bank data, exposing them to volatility in public debt markets caused by political risk.

“A very confrontational government could in extremis push the region back into crisis mode,” JPMorgan Chase & Co. analysts led by Matthew Bailey said in emailed research on Tuesday. The bank has an “underweight” position on Italian credit.

Most Italian companies are not facing imminent refinancing needs and have time to wait for markets to settle before raising new debt. Junk-rated Italian firms have issued 117 billion euros of bonds, according to data compiled by Bloomberg. Just 11 billion euros is due before 2020 and about half doesn’t have to be repaid until after 2024, the data show.

About one third of the short-maturity bonds belong to Telecom Italia SpA and their price was little-changed on Tuesday. The company can cover repayments with its 8 billion euros of cash and undrawn credit lines, it said in a presentation this month.

Astaldi’s 750 million-euro bond due in December 2020 fell to 72 cents on the euro Tuesday. That followed a decline last week when S&P Global Ratings downgraded the building contractor, which is planning a capital increase that’s conditional on maintaining its credit ratings.

“The Italian political crisis comes in the worse possible moment as the ECB is about to taper its overall QE program and within that the corporate sector purchases’ program,” said Filippo Lanza, who oversees $700 million at Numen Capital, referring to the European Central Bank’s quantitative easing program.

©2018 Bloomberg L.P.

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