European companies return to debt market after Ukraine shock

Servicemen of pro-Russian troops in uniform without insignia are seen atop a tank with the letter ‘Z’ painted on its sides in the separatist-controlled settlement of Buhas (Bugas), as the Russian invasion of the Ukraine continues, Donetsk region , Ukraine March 1, 2022. REUTERS/Alexander Ermoshenko

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  • European companies resume debt offerings
  • The resumption of emissions is slow in the United States
  • Issuers delay or cancel plans due to market volatility – bankers

March 3 (Reuters) – Companies returned to Europe’s corporate bond market on Thursday to issue debt securities after it remained frozen for a week following Russia’s invasion of Ukraine.

US medical device company Boston Scientific American launched three-, six-, nine- and 12-year bonds for a total of €3 billion to redeem US dollar bonds. Bazalgette Finance, a special purpose finance vehicle supporting the Thames Tideway Tunnel, has launched a £300 million 12-year green bond, according to Refinitiv’s IFR. The two marked the first trades in the market since last Wednesday.

Marco Stoeckle, head of corporate credit research at Commerzbank, noted that early issuers came from safer sectors, as would be expected after the effective market freeze.

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“It’s really hard to say this is the start of a longer-term trend because (the show) could dissipate within minutes if we see the wrong headlines.”

Reverse Yankees – US companies like Boston Scientific issuing bonds in European markets – also offer investors a higher yield as they are not eligible for European Central Bank bond purchases, while green bonds tend to attract additional demand from ESG-focused investors looking for a limited pool of assets.

Yields on investment-grade European corporate bonds rose 50 basis points in February as the market underperformed that of the United States and suffered its worst monthly loss since March 2020, according to BofA indices. The ECB’s hawkish turn and subsequent invasion have meant that yields, which move inversely to bond prices, have more than doubled this year.

STOP-AND-GO

This week’s reopening pales in comparison to the roughly $30 billion in U.S. investment-grade companies raised on Tuesday and Wednesday, according to IFR.

European emissions had already slowed before the invasion and are expected to remain discontinuous depending on day-to-day market conditions.

Issuers are still accommodating to rising borrowing costs, according to a senior banker who organizes debt sales for European companies.

“Some issuers are ready to go, some are struggling to understand, and the pipeline will change,” said the banker, who spoke on condition of anonymity.

Bankers told Reuters that some companies had postponed planned debt sales until the end of the month or even into May, with some giving up because they no longer see market conditions as attractive for opportunistic deals. Others may have sought alternative financing, such as private debt, the bankers said.

“Most of our issuers are fairly liquid and have strong cash balances, so they’re not in an immediate need to rush to the markets and pay big concessions,” another corporate debt banker said. .

Before the invasion, many analysts expected more corporate bond offerings this year to fund mergers and acquisitions as well as capital investments. Bankers are now saying emissions may fall short of those expectations given the prevailing uncertainty. Read more

“Financing will come if it has to, but opportunistic items will be harder to sell right now,” the first banker said.

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Reporting by Yoruk Bahceli Editing by Tomasz Janowski

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Tana T. Thorsen