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UPDATE 2-Portugal pays price to get syndication away
January 11, 2017 / 9:49 AM / a year ago

UPDATE 2-Portugal pays price to get syndication away

(Adds comments from leads, Portuguese debt agency)

By Michael Turner

LONDON, Jan 11 (IFR) - The Republic of Portugal is paying a hefty price for its first syndicated trade since April 2016, a sharp contrast to last week’s Ireland 20-year trade as the differing fortunes in the sovereigns’ recoveries are plain to see.

Lead managers on the April 2027 euro benchmark have set the reoffer level at 352bp over mid-swaps, the tight end of the 352bp-355bp guidance on demand of over 8.5bn. This will equate to a yield of around 4.23%.

While the final spread is inside the initial price thoughts of plus 360bp area, the trade is coming at a much more expensive level for Portugal than its most recent 10-year syndications.

“It’s a reflection of where the market is at the moment,” said a lead. “But I do not think the new issue premium they are paying is particularly high or low. It is closer to 10bp than 20bp.”

Portugal’s 4bn 10-year in January 2016 came with a 2.973% yield at 205bp over swaps. A 500m 30-year in April 2016 priced at 4.235%.

“The last 10-year was in early 2016 and things are a little bit different for the whole market now,” said the lead.

Portugal’s travails could not be more different from Ireland’s stellar performance since the eurozone sovereign crisis.

Ireland sold a 20-year last week at 50bp over swaps and has taken advantage of record low rates over the past two years to issue longer dated debt at progressively lower costs.

Portugal, on the other hand, is grappling with a banking sector creaking under the weight of bad loans, while support from the ECB is waning as it runs out of Portuguese bonds to buy under its Public Sector Purchase Programme.

Nonetheless, the head of Portugal’s debt agency says the country has turned a corner.

“Despite the current yields, most investor concerns seem to have abated as Portugal has been able to post one of the highest quarterly GDP growth rates in quarter three last year,” said Cristina Casalinho. “In Q3 last year, both investment and exports have resurged and helped the economic recovery.”

BBVA, HSBC, JP Morgan, Morgan Stanley, Novo Banco and Societe Generale are managing the RegS/144A transaction, which will price later on Wednesday.

Portugal is rated Ba1 by Moody’s and BB+ by S&P and Fitch. (Reporting by Michael Turner, additional reporting by Abhinav Ramnarayan, Editing by Helene Durand, Julian Baker)

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