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Telefonica raises more debt after failed unit IPO
October 10, 2016 / 1:37 PM / in a year

Telefonica raises more debt after failed unit IPO

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 investment-grade ratings.

“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 area.

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 said.

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 month.

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)

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