Italian bond issues, both from corporates and the Treasury, are likely to continue apace after this week's bumper crop, market players said, as investors see signs the worst of the economic crisis is over. "It's an indication of the fact that the crisis could be behind us. Just before the summer, no one would have dared to issue long-term expiries and furthermore, there would have been few investors interested," said one capital market manager at an international bank which worked on placements this week.
"Now the mood has changed, there's more confidence on the market, everyone's looking more optimistically at the future, and suddenly it's become imperative to take advantage of such an interesting market."
Market operators suggest there could be issues totalling 7 billion to 8 billion euros on their way from corporates like Enel, A2A, Telecom Italia, Luxottica and Campari. Insurer Assicurazioni Generali will issue a retail bond and there have been reports that bank Intesa Sanpaolo could issue another, while the Treasury plans a 30-year inflation-linked bond and foreign currency issues.
Enel Chief Executive Fulvio Conti said last week the utility, which has to refinance the debt it took on to buy Spain's Endesa, plans a dollar issue this year, followed by a retail bond. Telecom Italia Chief Executive Franco Bernabe told Reuters this week the company planned a retail bond. That could come later this year. A spokesman for Luxottica said the company "is absolutely not working or thinking about a bond issue." A2A could not be reached for comment and Campari declined to comment. Intesa Sanpaolo has not commented on the reports.
Part of the attraction is that market conditions are the best in three years. For example, the 10-year swap rate is currently 3.47 percent, confirming the average of 3.5 percent since January. "We haven't seen such a low average since the October 2005 to January 2006 period," said a manager at another investment bank. Raising funds on capital markets has become the most appealing method at the moment given that the other usual avenue through bank loans has become really expensive.
"Bank loans have become hard to find and very costly. In the first place it's almost impossible to find a bank that will give you credit for 10 years, and even if they do, they charge an extremely high spread over the base rate," said another banker. Bond issues are currently proving attractive to investors as well as they look timidly for a higher yield than treasury issues.
"In these last few months, investors have turned to the Treasury bond market which has been seen as the only safe haven," another banker said. "Now people are looking at relatively more risky markets. And the corporate bond market is certainly much less risky than equities."
The sheer volume of orders for Italian bonds this week is another clear indication of a more favourable climate. Each issue has garnered orders of at least three to four times the amount placed and issuers have consequently increased the amount they have given to the market. In addition, yields have been revised downwards. Energy company Eni, which has impeccable ratings, kicked off things on Monday with an issue which racked up 5 billion euros of orders in the blink of an eye. "When the market saw the duration and more than anything the order book ... it was a strong and clear signal - something has changed. And from that moment on, we were under a hail of issues," said one of the bankers.