The 10-year deal was launched on Tuesday morning UK time and, according to sources, was six times covered within the first few hours. Joint lead arrangers, JPMorgan, BNP Paribas, Deutsche Bank and Barclays Capital, closed the order book after five hours but had to wait overnight before pricing the deal.
ôThere was a lot of momentum in the early part of the day and at that time the markets were holding up well, but just after the book was closed, some volatility crept back into the market,ö says a source familiar with the deal. ôBy Wednesday morning, when the pricing was due to happen, the markets were decidedly soft, and while there wasnÆt a lot of movement in the initial orders, the deal eventually priced at 62bp over mid-swaps.ö
Sources speculate that without the volatility in the market, the deal may have priced under 60bp. The bonds did tighten by one basis point when trading started on Wednesday.
The 10-year notes pay a coupon of 4.750% and fall due in 2017. Sources say at least a dozen orders of over Ç100 million each were placed. Eventually 35% of the bonds were sold to UK investors, 18% to French accounts and 11% to German buyers. Funds bought 46% of the bonds, banks 23% and insurance companies 10%. Buy-and-hold investors make up about 75% of the book.
On Tuesday morning, about 60 investors took part in a conference call in the lead up to the transaction where they asked questions about TelstraÆs full privatisation in November last year and the progress being made on the companyÆs transformation strategy. Telstra did not feel the need to do a physical roadshow to sell the bonds.
Sources say the strong demand for the deal can be attributed to the popularity of the telecom sector and investorsÆ familiarity with the Telstra name. ôThere is real appetite for telco names at the moment, particularly amongst UK investors,ö says a source. ôLast week, AT&T completed a ú600 million 20-year sterling transaction which generated an order book of ú2.5 billion and priced at the tight end.ö
This is TelstraÆs second eurobond in two years. In June 2005, it placed a dual-tranche Ç1 billion offering. That deal priced at mid-swaps plus 37bp for the five-year Ç500 million tranche and mid-swaps plus 57bp for the 10-year Ç500 million tranche, paying a coupon of 3% and 3.875% respectively.
One reason for the wider pricing this time around might be because Telstra has slipped a notch on the MoodyÆs and Standard & PoorÆs rating scales since its last deal. Back in 2005, the agencies rated the company A1 and A+ respectively.
Now Telstra is rated A by S&PÆs, A2 by MoodyÆs and A-plus by Fitch which puts it in the same basket as other global telecos like AT&T, BellSouth Corp and TCNZ. But all three ratings agencies have a negative outlook on Telstra reflecting the regulatory and transformation risks that it faces.
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