Gallaher Group Plc, the world's fifth-biggest tobacco company, on Monday joined a burgeoning roster of companies preparing to issue euro bonds, while a US holiday slowed bond and default swap trading.
Gallaher plans to sell a benchmark-sized, "long 7-year" euro bond, an official at one of the banks managing the sale said, joining Societe Air France, Bertelsmann, Siemens, France's Reseau de Transport d'Electricite (RTE), and United Business Media, which are preparing deals.
Gallaher's bond will fund "general corporate purposes," and will be launched after a European investor roadshow running from September 14 to September 18, the official said. Benchmark bonds total at least 500 million euros ($643 million). ABN Amro, BNP Paribas and HSBC are managing the deal for Gallaher, whose cigarette brands in Britain include Benson & Hedges and Silk Cut.
Many analysts expect a pick-up in corporate bond sales after issuance came to a standstill for most of August - Societe Generale strategist Suki Mann forecasts the month will bring 11 to 13 billion euros of new bonds.
In the secondary market, the bellwether iTraxx Crossover index, made up of mostly junk-rated credit default swaps, was boosted by a rise in US equities on Friday, and growing optimism about the US economic outlook, a trader in London said.
The index tightened some 4 basis points to 232 basis points, he said.
But cash bonds and credit default swaps on individual companies were little changed, and activity muted, as the US market was shut for Labour Day.
"There is a lack of liquidity in the market today because of the US holiday," said a second trader in London. Telecom Italia's 5.25 percent bond due in January 2055 traded 1 basis point tighter on the day at a spread of 216 basis points over government bonds, the trader said.
Shares in TI and its indirect stakeholder, Pirelli, rose as stock investors bet that Rupert Murdoch's News Corp will buy into the telecoms firm's parent company, Olympia. TI chairman Marco Tronchetti Provera is expected to meet Murdoch on Thursday to discuss a content deal.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 52.2 basis points more than similarly-dated government bonds at 1504 GMT, 0.1 basis point more on the day. The credit protection cost of Volkswagen was steady after the chief executive of the German carmaker said the company wants to push forward the inevitable consolidation in the global trucks business.
At 1439 GMT, the CDS on VW was unchanged on the day at 23 basis points. That means it costs 23,000 euros a year to insure 10 million euros of VW debt against default.
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