By Christopher Whittall
Days after the European Central Bank detailed its plan to buy
corporate bonds, consumer-goods giant Unilever NV has sold one of
the stingiest new issues ever: a slug of debt that pays zero
coupons and will offer investors a return of practically
nothing.
In one tranche of the EUR1.5 billion debt sale, the Anglo-Dutch
company sold EUR300 million of bonds maturing in 2020 with a coupon
of 0%, offering investors a yield of just 0.08%.
Those bonds are one of the lowest-yielding euro corporate debt
sales on record, and highlight how unprecedented central bank
stimulus measures continue to push down financing costs throughout
debt markets.
Borrowing costs have fallen for big European companies since the
ECB said in March it planned to start buying nonbank
euro-denominated corporate debt. Unilever's deal is one of the
first since the central bank said last Thursday that this scheme
will begin in June.
The sale raises the prospect of whether companies could one day
persuade investors to pay them to borrow money, as some governments
now do.
"For highly rated corporate bonds, this is a bonanza time," said
Sanjay Joshi, head of fixed income at asset manager London &
Capital.
"You've got the ECB buying, you've got huge inflows into
high-grade investment funds and you've got historically low costs
of capital," he added.
The average yield on five-year euro-denominated investment-grade
corporate debt was 1% Friday, compared with 1.3% before the ECB's
announcement, according to Barclays. Yields fall as prices
rise.
Investors have poured $10.6 billion into high-grade and
high-yield bond funds over the past eight weeks as they begin
"front running" the ECB, Bank of America Corp. said in a research
report Friday. That compares with more than $17 billion that has
left equity funds over the same period.
With borrowing costs falling, companies have rushed to sell new
debt.
Drinks giant Anheuser-Busch InBev NV sold EUR13.25 billion of
bonds just a week after the ECB's March announcement, in the
largest ever sale of euro-denominated corporate bonds.
Later that month, French drugmaker Sanofi SA sold EUR500 million
of bonds maturing in 2019 at a yield of 0.05%, the record low for
euro-denominated debt sold in public markets, according to data
provider Dealogic.
"The ECB's corporate program has changed sentiment enormously,"
said Conor Hennebry, co-head of northern European corporate bond
origination at Deutsche Bank AG.
Mr. Hennebry said that he expects many other companies to issue
bonds in May, with the close of the current corporate results
season.
Banks handling the Unilever debt sale received orders of around
EUR4 billion from investors, in a sale that also included
eight-year and 12-year bonds, according to a deal notice released
by the banks.
The eight-year bonds had a coupon of 0.5% and offered a yield of
around 0.70%, while the 12-year bonds had a 1.125% coupon with a
yield of 1.21%, according to the deal notice. Citigroup Inc.,
Deutsche Bank AG, HSBC PLC and Banco Santander SA handled the
sale.
With yields falling so low, bankers wonder if investors will
soon have to pay selected companies for the privilege of lending
them money.
Some governments, such as Japan and Germany, have already issued
negative yielding debt. Central banks in Europe and Japan have cut
their interest rates into negative territory, pulling down bond
yields.
The effects have spread into secondary markets, where nearly a
third of investment-grade sovereign bonds now have negative yields,
according to Citigroup Inc.
For corporate bonds, around 11% of the EUR1.65 trillion market
in euro-denominated investment-grade debt now trades at negative
yields, according to Souheir Asba, a credit strategist at Bank of
America Corp.
Those bonds are typically older issues that have only a short
time left to maturity.
Whether companies can sell fresh debt at negative yields for
longer terms remains to be seen, even with the presence of large
new buyer, the ECB.
"I think it would be possible to sell [corporate] bonds at a
negative yield, but you do wonder whether investors would actually
buy it," said Mr. Hennebry.
Some investors with excess cash who are already own
negative-yielding debt "might be interested," he said.
Write to Christopher Whittall at
christopher.whittall@wsj.com
(END) Dow Jones Newswires
April 25, 2016 14:06 ET (18:06 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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