European Companies Chase New Investors Through Private Sales
August 11 2017 - 8:06AM
Dow Jones News
By Nina Trentmann
European companies have stepped up the sale of securities
directly to investors as they seek to diversify their funding amid
fears of tighter monetary policy.
German rail operator Deutsche Bahn AG, Vodafone Group PLC and
Deutsche Telekom AG are among the companies pursuing investors from
Asia as they prepare for interest rates, and debt costs, to turn
higher.
The rise in private placements highlights that finance chiefs in
Europe are preparing for a change in monetary policy after a
prolonged period of ultralow and negative interest rates.
Many companies have loaded up on debt, taking advantage of low
borrowing costs. CFOs now worry that a shift to less accommodative
monetary policies-- expected for 2018--could trigger market
volatility similar to America's taper tantrum that dominated the
summer of 2013.
In the U.S., the Federal Reserve wind-down of monetary stimulus
was accompanied by a decline in liquidity in the bond market and an
uptick in yields.
To limit such risks, CFOs of European companies are working to
broaden their funding sources by developing closer links to
investors in Asia.
Deutsche Bahn AG, the German rail operator, in July did a
private placement in Swedish krona for institutional investors in
South Korea. The 15-year placement had a volume of SEK530 million
($65 million) with a coupon of 2.2%, according to Deutsche
Bahn.
"We want to broaden our investor base and reap cost benefits,"
said Christian Große Erdmann, head of capital markets and risk
management at Deutsche Bahn. The company has for a number of years
worked with investors from Japan, Hong Kong and Australia and has
now begun to develop ties with investors in South Korea. "This is
new," Mr. Große Erdmann said.
Vodafone Group PLC, the British telecommunications firm, this
summer did private placements in Japanese yen and in Hong
Kong-dollar. The two placements in Hong Kong-dollar had a total
volume of HKD$1.005 billion ($128.5 million), whereas the placement
in yen was worth around $92 million. "This is the first time we
ever did a placement in Hong Kong-dollar," a member of the
company's treasury department said.
Vodafone is actively seeking to diversify its investor base in a
bid to reduce the reliance on bond sales, he added.
Other companies are following suit. European firms issued
private placements in euro worth $12.79 billion during the first
half of the year, up from $10.95 billion during the first half of
2016, according to Dealogic Ltd. The volume of placements in other
European currencies also went up, from $10.63 billion to $13.98
billion. Private placements by Asian subsidiaries of European
companies rose from $28 million to $334 million during that
time.
"We have been watching this trend for a while," said Isabelle
Toledano-Koutsouris, head of corporate debt capital markets and
derivatives for Europe, Middle East and Africa at UBS Group AG in
London. It illustrates that both corporates and investors are
willing to explore new avenues, Ms. Toledano-Koutsouris said.
The trend comes on the back of rising bond sales by European
companies in Asia.
"A lot of Asian investors want to diversify their investment
portfolio," Ms. Toledano-Koutsouris said. This and the search for
yield makes Asian investors--in particular South Korean life
insurance companies--seek opportunities in Europe.
Due to the nature of private placements, only the dealer, the
issuer and the investor are familiar with the rationale and the
exact details of a certain deal, according to Marko Milos, managing
director at Goldman Sachs Group Inc. in London. The bank executed
at least one of these placements recently.
So far, the impact on markets has been limited, as private
placements make up less than a 10th of the volume of corporate
bonds. European firms issued Eurobonds worth $175.42 billion during
the first half of 2017, up from $157.23 billion during the same
period in 2016. The volume of issuances in other European
currencies also ticked up, from $30.78 billion in the first half of
2016 to $52.87 billion in the first six months of 2017, according
to Dealogic.
Private placements on average range from EUR25 million ($29.4
million) to EUR150 million, Ms. Toledano-Koutsouris said.
Deutsche Telekom AG, the German telecommunications firm, said it
doesn't want to rely on certain investor groups too heavily. "This
requires smart diversification in terms of the volume, the
currency, the duration and the financial instrument," a spokesman
said. Deutsche Telekom recently issued private placements in Hong
Kong-dollar and Norwegian krone, the spokesman said. The combined
value of these amounted to $294 million, he added.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
August 11, 2017 08:51 ET (12:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Vodafone (LSE:VOD)
Historical Stock Chart
From Mar 2024 to Apr 2024
Vodafone (LSE:VOD)
Historical Stock Chart
From Apr 2023 to Apr 2024