Spanish corporates are itching to return to the bond market, but bankers say it's not clear investors want to buy debt in Spain - or that companies will want to pay the price to sell it. Heavyweights including Telefonica and utility Iberdrola are keen to prove access to funding, following a strong rally in their spreads over the past two weeks and having been locked out of capital markets since the first quarter.
"On the basis that Spanish corporates have not printed for a few months, there are some that will want to take an opportunity if it arrives in September," said Nicholas Bamber, head of investment-grade bond origination at RBS, which was one of the banks on Telefonica's EUR1.5bn six-year trade in February.
Demand for that deal, at close to EUR10bn, was among the strongest seen for a corporate deal this year. Iberdrola, the last Spanish corporate to access the euro bond market in March, had similar success after attracting EUR4.5bn for a EUR600m four-year deal.
Telefonica, the largest Spanish corporate bond issuer with around EUR16.5bn of bonds outstanding, has three euro-denominated deals, worth around EUR4.75bn, maturing over the next two years, and bankers say the company has plenty of resources to finance that. "Spanish corporates are not desperate. They have reasonable amounts of cash and undrawn credit facilities which they can use," said Bamber.
A potential return to bond markets largely hinges on investor perceptions of the European Union's support for Spain, he added. As cash continues to flow into the corporate asset class, there's no doubt peripheral spreads are attractive even when the recent recovery is taken into account.
"It's the greed-versus-fear factor," said one investment-grade investor. "There is still too much risk surrounding Spain, just looking at where 10-year yields are, and a danger that the sovereign could lose its investment-grade rating." Ten-year yields, hovering around 7 percent, suggest that long-term funding at that level is not sustainable.
A downgrade to junk - and the risk that corporates would be dragged down as well - would likely be dependent on austerity measures that would be tied to any rescue, analysts say.
Two-year yields on Spanish government debt have halved to around 3.5% over the past two weeks, since ECB President Mario Draghi said the central bank would target the short-dated bonds if it was to buy Spanish government bonds. That has taken huge pressure off Spain by buying time to negotiate the terms of a potential bailout. Corporates with greater international exposure, including Telefonica, are best placed to issue new bonds - a move that would prove access to funding and ease stability concerns.
The major hurdle, some bankers say, is whether a balance can be reached between what corporates want to pay and the level at which investors are willing to buy.
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