SABMiller Joins Bond-Sale Rush in Europe

Companies tap into credit market rally.

SABMiller Plc is selling bonds in euros for the first time in three years as companies from G4S Plc to TeliaSonera AB tap into Europe’s credit-market rally.

The world’s second-biggest brewer is issuing benchmark notes due January 2020, according to people familiar with the deal. Debt issuance will top at least 16.4 billion euros ($21.3 billion) this week, the busiest since Sept. 16 and above the year’s weekly average of 14 billion euros.

Companies are taking advantage of a rally that pushed the cost of insuring the region’s bank debt to near the lowest in 16 months as they raise funds before the holiday period. Corporate bonds in Europe yield a record low 2.2 percent, Bank of America Merrill Lynch’s EMU Corporate index shows.

“These are the last weeks before the holidays, so the last chance to issue this year,” said Harold Van Acht, senior credit analyst at Kempen Capital Management NV in Amsterdam. “Both absolute yield and credit spread levels are generally attractive for issuers and investors still want to put cash to work.”

London-based SABMiller last sold bonds in euros in July 2009 when it raised 1 billion euros of notes due January 2015 priced to yield 170 basis points more than the benchmark swaps rate, according to data compiled by Bloomberg. The new notes are being marketed with a spread of 70 to 75 basis points.

TeliaSonera, Sweden’s largest telephone company, is raising 400 million pounds of bonds due in 30 years, its first deal in the currency, at a spread of 135 basis points more than gilts, according to people familiar with the transaction. British security provider G4S is marketing 500 million euros of six-year bonds at 167 basis points to 180 basis points more than swaps

Also in the market for the first time is German power company Bilfinger, which is selling 500 million euros of seven-year bonds that will yield 115 basis points more than swaps. The securities were initially marketed with a spread of about 135 basis points.

Bonds of Spanish utilities Iberdrola SA and Gas Natural SA were the best performers today in Bank of America Merrill Lynch’s EMU Corporates Non-Financials index. The yield on Bilbao-based Iberdrola’s 4.125 percent notes due 2020 fell 12.3 basis points to 250 basis points more than benchmark German government debt. That’s the smallest gap since March 23. The spread on Gas Natural’s 5.125 percent 2021 notes shrank seven basis points to 384.

 

Credit-Default Swaps

Credit-default swaps insuring Spanish government debt fell 12.5 basis points to 277, approaching the lowest level in 16 months. Contracts on Italy dropped 11 basis points to 236, the lowest since Oct. 18.

The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers dropped four basis points to 161 at 10:30 a.m. in London, approaching the lowest in 16 months. The subordinated index fell five basis points to 283.

The Markit iTraxx Crossover Index of swaps on 50 companies with mostly junk credit ratings declined 12 basis points to 498. The Markit iTraxx Europe Index of contracts on 125 companies with investment-grade ratings dropped 2.5 basis points to 123.

A basis point on swaps contract a protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. The derivatives pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

 

Bloomberg News

 

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