Bankers are hopeful of deals this week in Europe's investment-grade corporate markets, even though geopolitical tensions in the CIS became the latest reason to keep issuers on the sidelines. The uncertain market backdrop has prompted one corporate, Spain's Aqualia, to postpone a dual-tranche debut green euro offering.
The water management company cited market conditions and upcoming earnings blackout for the delay, after announcing the mandate last Wednesday. Aqualia was marketing the proposed deal via CaixaBank (global coordinator), BBVA, ING, Santander and Societe Generale.
"The world is very different from how it was on Thursday and they are entering a blackout period for results, so their window was always quite narrow," said a lead.
"We thought it's better to step down rather than drag it out for another two days – the market is just not ready for it. Post the results, they are looking to re-engage with investors."
Primary issuance in the IG market has been stop-start for several weeks as rising borrowing costs and earnings blackouts have combined to curtail deal flow. While the prospect of higher yields will continue to loom large, on Monday, the fear of an imminent invasion by Russia of Ukraine was an additional risk to factor in and meant no deals were launched in Europe across all credit markets. Russia denies it is planning an invasion.
"The market is getting very hung up on any sort of new information that's making everyone skittish," said a syndicate banker.
Most deals last week went well. On Thursday, for example, both German semiconductor maker Infineon Technologies (BBB from S&P) and Irish credit data provider Experian were more than six times covered at peak orders for their respective offerings of €500m February 2025 and €500m May 2031 bonds. Both then moved tighter after being free to trade.
However, with the latest US inflation data, released on Thursday, at a 40-year high and now the threat of conflict in Europe, issuers will have to be very nimble in their strategies. The syndicate banker is hopeful that deals will continue to get done.
"We had a two-and-a-half-day window last week as the market fell apart again on Friday. We're having a couple of bad days and good days, but the market will be open with issuers bringing deals at reasonable premiums."
Pipeline
Even with Aqualia stepping down, there are a few mandates in the pipeline. Portuguese telecoms and media company NOS has an inaugural €300m no-grow five-year sustainability-linked bond ready to go once markets allow, while Summit Properties is looking to print a capped €300m five-year conventional note. US real estate company Prologis, meanwhile, is planning a sterling offering.
Prologis International Funding II is marketing a 10-year and/or 20-year green bond to sterling accounts that will have a guarantee from parent Prologis European Logistics Fund. The notes have expected ratings of A3/A– (Moody's/S&P).
"It's a Single A name, which the sterling market likes, although the name is less known in sterling, and that may add an extra layer of interest during marketing, as investors would want to understand the fund behind the issuer," said another syndicate banker.
He thought the REIT would benefit from insurance and pension fund demand given the long-dated tenors. BNP Paribas, Bank of America, HSBC and NatWest Markets are the leads.
The proposed green bond would be the third sterling offering from a non-UK corporate this year, after Realty Income and Volkswagen. Realty Income was the first US issuer to tap the sterling market this year, with a £500m dual-trancher consisting tenors of five-year and 20-year.
If issued this week, Prologis' trade will follow sterling deals last week from Associated British Foods and Severn Trent that took advantage of demand that was unfazed by the Bank of England's announcement on February 3 that it intends to sell down its £20bn corporate bond holdings by the end of 2023. The central bank's plan sent sterling investment-grade corporate spreads wider by around 15bp, on average, over the course of the week according to iBoxx.
"Moving ahead with the [Severn Trent transaction] vindicated that when there's a market open, you're supposed to take it," said the second syndicate banker, who was also a lead on that deal. He pointed out that with the ECB's next meeting on March 10–11, there are not too many opportunities to get deals done before then.