LONDON, Oct 10 (IFR) - Demand for Telefonica's first bond
since it was forced to shelve the IPO of its infrastructure unit
exceeded 4bn on Monday, with investors deciding they have
little option but to buy the ECB-eligible name.
The Spanish telecom company is expected to print a 2bn
bond, the upper end of the 1.75bn-2bn size expectations.
Telefonica, was hoping to raise up to 1.5bn from an initial
public offering of Telxius in September but had to shelve the
deal on weak investor demand, piling further pressure on its
"I'm not a fan, I think they miss deleverage targets, and if
it wasn't for (the ECB's) CSPP I'd be short Telefonica seniors,
making me a reluctant middleweight," one investor said.
The issuer was one of the first names bought by the ECB when
it began its programme despite its lowly credit rating. Rated
Baa2/BBB/BBB (negative/stable/stable) the company holds nearly
50bn of outstanding debt on its balance sheet, according to
Thomson Reuters data.
Telefonica set initial price thoughts on the four-year at
mid-swaps plus 55bp area and the 15-year tranche at plus 120bp
At these levels investors said the deal offered just 15bp
and 20bp premium.
"The new four-year deal has no real value post-tightening,
and the long end is too far away to feel comfortable with the
fundamentals and ropy technicals at long end," the investor
Leads set guidance to plus 45bp and plus 115bp.
A lead said the company was issuing senior debt in line with
its 'regular funding plans', and wanted to time the transaction
ahead of potential volatility expected from elections in Italy
and the US.
But a banker away from the deal said, "Unlike most
investment-grade deals lately the trade has suffered from a lack
of price traction while orders, although twice subscribed, are
not in line with its usual demand."
Telefonica attracted 4.75bn of demand for its hybrid deal
for a 1bn callable March 2022 hybrid bond in September.
However, some investors are still reeling from mark-to-
market losses from that trade, which priced at par but plunged
to lows of 98.5 bid, on a cash price basis.
The 3.75% perpetual callable March 2022 deal has since
retraced some of its losses and was bid at a cash price of
99.062 on Monday morning, according to Tradeweb.
In a bid to reduce its liabilities, Telefonica also said
last month that it was looking to list about 30% of its British
mobile unit O2.
Telefonica boss Jose Maria Alvarez-Pallete asked the banks
to speed up the preparatory work for the IPO, hoping to list O2
in December if market conditions allow, Reuters reported last
The deal is expected to price later today via Barclays, BBVA
(B&D), BNP Paribas, CaixaBank, HSBC, Lloyds and SMBC Nikko.
(Reporting By Laura Benitez, editing by Helene Durand)