Like their counterparts in Asia, European corporates have been keen to tap the international bond markets while interest rates are at all-time lows. And despite the huge amounts of capital the corporate sector as a whole is sitting on, tapping the Asian markets still make sense from a diversification and a ratings standpoint.
“Asia has been a terrific supporter of high-yield European corporate deals, especially hybrids,” says Lorenz Altenburg, head of corporate syndicate for Europe, the Middle East and Africa at Nomura in London. “The interest has been ongoing.”
This year one of the largest corporate deals has come from EdF, the French utility. In March it sold a €6.2 billion ($8.1 billion) deal through four separate tranches; a sterling tranche, a dollar tranche and two tranches in euros. The performances of these four tranches since launch illustrate the increased demand for euro-denominated assets. The two euro tranches have tightened by 60bp and 50bp, respectively. The sterling tranche too has tightened by 52bp. But the dollar tranche has only tightened by 8bp. However sources say that Asian investors were only a small proportion of the euro and sterling tranches, but were very well represented in the dollar tranche.
What is surprising many in the market is that as the euro has maintained its strength (recently hovering around the €1.30 to the dollar level), so demand for euro-denominated paper has held up. In the past, Asian investors were predominately dollar investors, with some official institutions taking around 10% of euro deals to match their reserves. But as interest rates have fallen, so Asian private bank investors have gone down the credit curve looking for yield.
But even while they are attracted by the yields on offer, Asian investors have been somewhat wary of getting too embroiled in the European corporate sector. Indeed, the official institutions are largely absent from the corporate bond market.
“The eurozone has been incredibly strong despite everything going on with Cyprus,” says Altenburg. “There is lots of real money in Europe despite the sovereign crisis, such as life insurance and pension savings in France; and there is a good domestic bid for the euro-denominated bond market. Investors in Europe are much more sanguine about the prospects for the eurozone than investors in Asia, and as a result Asian investors have been a bit late to the party.”
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