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Greek 'No' vote won't shutter primary market
July 6, 2015 / 1:25 PM / 2 years ago

Greek 'No' vote won't shutter primary market

LONDON, July 6 (IFR) - Issuers and syndicate bankers are hopeful that the primary debt market may reopen in the coming days despite uncertainty over Greece’s future, with one senior syndicate official predicting as much as EUR16.5bn of supply this week.

Voters in this weekend’s Greek referendum overwhelmingly rejected the European Union’s conditions for a rescue package, but a muted reaction on Monday morning is being viewed as evidence of the ECB’s ability to ring-fence the crisis.

“We and the market in general have confidence that the ECB will keep contagion to the periphery limited. Markets haven’t become cheap enough for us to look to add aggressively, but we are certainly not running for the hills either,” said John Taylor, fixed income portfolio manager at AllianceBernstein.

“Last week [the ECB] put some corporate names on the QE list: I don’t think this was a coincidence, and I do believe it gave the market some assurance,” he said.

Credit indices opened wider, but not to the extent seen last Monday. German 10-year yields, meanwhile, stood 5bp lower by early afternoon, while peripheral yields had risen by up to 17bp in the case of Portuguese 10-year paper, movements that one banker described as reasonable.

As a result, syndicate officials were expecting anywhere between EUR7.5bn and EUR16.5bn of credit supply this week.

But bankers said they would advise issuers to wait until Wednesday. By then, the Eurogroup of finance ministers would have met, and the ECB should have clarified its position on extending emergency liquidity assistance to the Greek banking sector.


Despite recent severe disruption to SSA primary markets, Finland is thought to be considering a 10-year syndication, and rumours of Belgium six- and Spain 30-year bonds resurfaced last week - though the latter may be a step too far for this market.

“I think core sovereigns can get deals away, especially with the flight-to-quality bid. Spain has a brave treasury team, but maybe this is a bit too much for them to attempt at the moment,” said one banker covering European public sector debt.

Supranationals and agencies are more likely to access the US dollar market, and probably for smaller sizes than is the norm, said one SSA DCM banker.

Financials and corporate bankers are advising clients to wait for more certainty, but are still cautiously optimistic.

“Increasingly, more issuers are prepared to bite the bullet and will pay up if required,” said Marcus Schulte, head of financial institutions debt capital markets at Credit Suisse.

“Some weeks ago, a lot of people would have said that capital is expensive and they’re under no pressure, but some issuers have changed their stance. Markets can go in two directions and to hope that everything will just continue to grind tighter is not reasonable anymore,” he said.

A brimming pipeline after a quiet second quarter means that for certain trades, the market could well stay open this month and into August too, as it did in 2010 and 2012.

“It may not be the best time for the big trades, but there would be a chance of doing something more modest,” a senior FIG banker said. “But you could end up leaving spread on the table as not all investors would be around to drive the price down.”

In the current market, new issue premiums would be elevated, said another FIG syndicate banker. He estimated 20bp-30bp concessions for senior debt but as much as 50bp-60bp for Tier 2.

And as with SSA, some FIG issuers could look at US dollars.


Those companies with imminent financing needs and a willingness to pay up are still in with a chance of locking in funds this week, market players said.

Some 15 deals remain in the pipeline, a handful for M&A purposes, which could propel issuance before the summer lull.

US names are expected to follow last week’s EUR2.7bn Danaher trade, provided they too come with hefty 30-40bp premiums.

“It still works out for US companies to issue in euros on a swaps basis versus dollars. But issuers who need funds are the only ones we’ll see - no one would bring a bond to this market if they didn’t need to,” one corporate portfolio manager said.

Issuers in the pipeline include engineering company Amec Foster Wheeler and German real estate company Deutsche Wohnen.

Investors, however, will stay selective despite having cash to put to work.

“As long as the market doesn’t sell off further and we start to see some stabilisation then we would be open to buying new supply, although it would have to come cheap, and we’re in no rush,” said another investor. (Reporting By Abhinav Ramnarayan, Alice Gledhill, Helene Durand, Laura Benitez, Editing by Luzette Strauss and Julian Baker)

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