* French investors becoming cautious
* Le Pen sparks volatility
* French corporates to front-load financing
By Laura Benitez and Helene Durand
LONDON, Feb 10 (IFR) - French investors scaled back their
bids for corporate paper this week as mounting concerns over
political risk and poor valuations began to weigh.
Participation from French accounts, usually heavyweight
buyers of European corporate credit, has more than halved in
some of this week's deals compared to typical levels.
The removal of a significant backstop bid comes at a time
when French companies are expected to pursue funding
aggressively ahead of the presidential election.
"We have seen lower outright demand and greater price
sensitivity creeping into demand dynamics from this investor
base across the curve," said Brendon Moran, global co-head of
corporate debt capital markets origination at Societe Generale.
"It's a fluid situation that will need to be monitored
closely for its impact on execution, especially as companies
come out of earnings blackout and consider whether to issue."
France accounted for just 13% of Molnlycke's €500m
eight-year on Monday, compared to 36% of a €500m 10-year the
borrower sold in November 2015.
Unilever on Wednesday saw only 10% of its €600m 10-year
going to French accounts, having placed a whopping 40% of a
€700m 12-year trade there in April last year.
Weakness in French government bonds - which have borne the
brunt of the election worries - has left valuations looking
stretched, particularly for domestic credits.
Klepierre's €500m 10-year lost over a third of its book on
Thursday, with French investors leading the pullback.
Orders had grown to €1.5bn by midday, but an 18bp revision
from the wide end of talk saw investors pull €600m of orders.
The A- rated deal priced at swaps plus 67bp, less than 30bp
back from where 10-year OATs were trading earlier in the week.
"French corporate bonds offer no value. If you want to own
French risk, you might as well own France," said Mark Dowding,
co-head of IG debt at BlueBay Asset Management.
Much of this week's volatility was sparked by Marine Le Pen
saying she would take France out of the euro if she was elected.
"Whenever a sovereign comes under pressure it takes
corporates and financials with it. You tend to reach a point
where corporates need to reprice as the sovereign drags wider,"
The spread between 10-year OATs and Bunds reached 79bp on
Wednesday, the highest since November 2012. The margin has since
come back in to around 70bp, according to Tradeweb data.
Corporate spreads, conversely, have tightened dramatically
since the ECB announced its corporate bond purchase programme in
March last year.
"The problem for French credits is that, like many
corporates, after the rally we've seen in 2016 they look very
expensive, especially as they make up a large part of the ECB
CSPP universe," Richard Casey, senior credit portfolio manager
France-based accounts typically provide strong support in
the credit market, buying on average around 20%-25% of IG
corporate deals, according to bankers.
"French accounts have definitely been more disciplined and
price sensitive, and usually they tend to be the engine room
behind the deal" one banker said.
"We've seen accounts pull back as soon as pricing is
tightened and some just not bother to play at all. So no, we
can't rely on them to push deals through at the moment."
(Additional reporting by Helene Durand; editing by Alex
Chambers, Julian Baker)