Energy proved the great dividing factor in the euro investment-grade market on Tuesday, with sharply contrasting pricing outcomes for global steel producer ArcelorMittal and French utility Engie.
While Engie and Swedish engineering company Sandvik had few troubles in primary, the uphill battle facing ArcelorMittal was reflected by it starting out offering a yield equivalent to 5% for four-year money as steel producers grapple with weakening demand and soaring energy prices.
"We're seeing a bifurcation between those issuers who are facing a heavy impact from higher energy prices and those who benefit – and ArcelorMittal struggles on that basis, so it's not surprising people wanted a large concession," said a banker.
The magnitude of that concession was a point of debate, although even those estimates at the lower end of the range reckoned ArcelorMittal (Baa3/BBB–) had put 80bp on the table to start with.
The company opened books on the note at mid-swaps plus 240bp area through BNP Paribas, Credit Agricole, ING, Intesa Sanpaolo IMI and Societe Generale. The initial point was significantly wide of the comparables distributed by leads, which included one of ArcelorMittal's own bonds, a November 2025 issue spotted bid at an I-spread of plus 118bp.
"The view on ArcelorMittal is that their secondary trades a bit tight for a Baa3/BBB– credit and, as such, the curve needs to be steepened a bit," said a lead. "Investors during the roadshow saw fair value closer to 160bp. It's clearly a much easier trade going sub five years for this type of credit, which has been a recurring theme this year."
The banker, meanwhile, thought ArcelorMittal had offered up 100bp.
In a corollary to ArcelorMittal opening way back of fair value even against its own curve, CreditSights analysts pointed out that the €745m 10-year SLB from Anglo American (Baa2/BBB/BBB) last week had printed well wide of that company's existing euro debt stack.
Among the other short-dated bonds in the comparables list, Anglo American has a March 2026 seen at 83bp and Glencore (Baa1/BBB+) an October 2026 at 130bp.
"We believe ArcelorMittal should trade wide to both Glencore and Anglo American, given ArcelorMittal's significant exposure to Europe and the looming energy crisis which has resulted in plant closures and significant margin compression," wrote CreditSights.
ArcelorMittal has faced particular issues in Europe, with Reuters reporting that it is in negotiations with unions on a furlough scheme for the 8,300 workers at its Spanish mills. Among other measures, it is also working on a furlough scheme in France and is planning to switch off one of two furnaces at its steelworks in the German city of Bremen by the end of September.
ArcelorMittal intends to reduce its fourth-quarter output in Europe by 1.5 million tonnes from the same period last year.
Despite offering an eye-watering concession in Tuesday's trade, the company managed to take just 10bp off IPTs, with the spread set at 230bp and the borrower printing €600m.
The figure raised was well short of the €1bn which CreditSights thought the company could be targeting to refinance debt, with books only peaking at around €1.3bn. Final demand was around €1.1bn for the trade, which was first announced on September 15.
"It took a while for them to come after they marketed the deal, and given that time taken you have got to think the feedback was a bit mixed," said the banker.
"It certainly looked like a more difficult trade than the other ones today, but it was against the backdrop where spreads are expected to go wider and yields are volatile. So, it's good they got it done and got comfortable paying that very hefty concession."
Energy winners
But while ArcelorMittal toiled, there is also the prospect of winners emerging from the energy crisis.
"Energy is a sector that typically hasn’t done well in past recessions. But given the current supply/demand imbalance in energy markets, prices remain supported for the time being, allowing energy companies to generate healthy profits and bring down debt," said Maria Staeheli, senior portfolio manager at Fisch Asset Management.
It was certainly far smoother sailing in the primary for Engie (Baa1/BBB+/A–), where books passed €2.75bn at one point for its €650m seven-year green bond. Although interest fell back to c. €2bn, the company was able to launch the trade with just a marginal new issue premium.
Global coordinators BNP Paribas, Credit Agricole and Societe Generale, and active bookrunners BBVA, ING, Mizuho, Santander and UniCredit began with IPTs of swaps plus 135bp area, with leads seeing fair value in the high 90s.
"We were happy to get everything done given it was all red this afternoon with rates going up," said a second banker.
Sandvik (A–, S&P) rounded things off with a €500m no-grow seven-year through Citigroup, Danske Bank, Deutsche Bank and Nordea.
Final terms were set with the spread at swaps plus 123bp compared to IPTs of 150bp–155bp. The first banker put the final concession at 8bp.
"They did a seven-year in November where they did investor work and are still benefiting from that," he said.
"That November trade, a five-year in May and this one today, have gone equally well. We managed to take out most of the value from the starting concession, having started out quite carefully at IPTs before pressing hard at guidance because we wanted to test investors. Most saw 125bp as a bit of an inflection point."
Demand at the guidance stage of 125bp area had reached over €1.6bn.
Corrected story: Corrects tenor of Sandvik November deal in quote