Gucci owner’s bond deal breaks corporate sales freeze in Europe

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(Bloomberg) – Gucci owner Kering SA is experiencing the longest dry spell for corporate debt sales in Europe since 2020, with May’s approach likely to spark more activity before the end of support from the market.

The French luxury fashion group sold 1.5 billion euros ($1.58 billion) in two installments, according to a person with knowledge of the sale, who asked not to be identified as she is not not allowed to talk about it. The deal increases the paltry €6.53 billion in non-financial corporate issuance so far this month and is the first new investment-grade debt deal from a non-financial company since April 12. , ending the longest sterile period since August 2020, according to the data. .

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Orders for Kering’s two 750 million euro bonds closed above 4.1 billion euros combined, after peaking at more than 6 billion euros. The drop in demand for the company’s first offering since May 2020 follows a significant tightening of spreads offered to buyers, with the pricing of the three-year tranche at 15 basis points above average swaps after the start. marketing at around 45 basis points. The spread on its eight-year tranche was pegged at 37 basis points and well within an opening target of around 70 basis points.

Borrowers shunned the region’s debt market as the quarterly profit blackout period coincided with global market volatility and the start of central bank interest rate hikes. At the same time, Russia’s invasion of Ukraine fueled fears of supply chain pressures and runaway inflation. But some companies may not want to postpone funding programs much longer as broader markets begin to recover.

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“In May, the offer could resume,” said Timothy Rahill, credit strategist at ING Groep NV, in email comments ahead of Kering’s offer. “Issuers looking to fund this year will want to come before the summer, especially now that the corporate sector buy program will end in the third quarter.”

European Central Bank President Christine Lagarde said at a press briefing on April 14 that the ECB expects net asset purchases under its asset purchase program “expected to be concluded in the third quarter”.

The absence of companies in the market also helped fuel the lowest year-to-date sales volumes of non-financial issuers on record, with a price tag of just 96 billion euros. That’s about 39% lower than the same time last year, according to Bloomberg data dating back to 2014.

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“With many companies already well funded, there is no rush to get to the markets immediately amid the current volatility,” said Tomas Lundquist, head of European corporate debt capital markets at Citigroup. Inc, in a video interview. “Our advice to companies is to prepare to issue once markets are stable, having documentation platforms ready and flexibility to be able to raise capital in both Europe and US bond markets.”

Clearer window

Medical equipment maker Koninklijke Philips NV is also offering 2 billion euros in new banknotes on Thursday. It is marketing three tickets that include green and durable slices, according to a separate person with knowledge of the sale.

These are the first new non-financial corporate bonds offered on the European primary market since April 12, when British energy supplier SSE Plc priced the hybrid bonds in euros. In previous Aprils, Coca-Cola Co., Orange SA and PepsiCo Inc were among the major issuers to come to market. The end of restrictions on corporate profits could give a boost to debt sales, if companies decide to strike deals before the summer’s seasonal slowdown.

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“The market is entering a period where we are likely to see a recovery in supply,” said Sam Boughton, head of corporate bond syndicate at NatWest Markets Plc. “After the Fed and Bank of England meetings next week, there will be a bit of a clearer window, but all the lingering market concerns about the Russia-Ukraine crisis, inflation and the pullback of banks centers remain.”

Still, the rebound is far from guaranteed, with market participants weighing central bankers’ next moves and the uncertain global economic outlook. Potential borrowers may find that they will have to take limited opportunities if volatility persists.

“I think that’s pretty clear evidence that the market is weak and syndication desks are worried about getting deals,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management. “The nervousness comes from the unraveling of years of central bank liquidity. None of us, including central bankers, really have experience of what that looks like and we are far from the end.

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Sallie R. Loera