Fitch Expects Strong Bond Issuance for Iberian Corporates in 2013

Fitch Ratings said that the beginning of 2013 has brought significant funding activity for corporate issuers located in Spain and Portugal.

The credit ratings agency (CRA) added that as long as the sovereign crisis in the eurozone remains under control, it expects to see strong bond issuance for Iberian corporates during 2013. Higher-rated corporates – BBB or above – could possibly access the market to refinance higher priced debt funding issued during 2012 given the relative market stability of the past few months.

Additionally, Fitch also expects an increase in bond issuance for low investment grade or high yield issuers, especially in Spain given the banking crisis. These types of corporates are now looking to diversify their funding sources to reduce their average cost of debt and their exposure to domestic banks, as well as lengthen their debt maturity profile.

The CRA reports that Iberian corporates bond issuance was significantly higher in January 2013 compared with January 2012. A total of €4.9bn of bonds has been issued by Fitch-rated corporates based in Spain and Portugal. Around 70% of the total amount was issued by Telefonica (BBB+/negative), Iberdrola (BBB+/negative) and Gas Natural (BBB+/stable) with €1.5bn, €1bn and around €0.9bn respectively. Fitch notes that these issuers have been able to tap the market with long-term bonds with maturities between six and 10 years and with attractive yields compared with 2012’s issuance.

Notwithstanding only the one notch differential between the Spanish sovereign rating (BBB/negative) and Telefonica, Iberdrola and Gas Natural’s issuer default ratings (IDRs), it should be highlighted that these corporate issuers keep on issuing bonds at significantly lower yields (up to 100 basis points (bps)-120bps depending on market conditions) compared with Spain’s bonds with the same maturities.

Ferrovial (BBB-/stable), Redes Energeticas Nacionais (REN, BBB/negative) and Abengoa (B+/stable) issued a total of €1.05bn. In the case of Ferrovial, the issuance was their debut in the capital markets and the €500m bond was mainly used to refinance part of its existing syndicated loan.

Fitch notes that there is negative rating pressure on a number of Iberian corporates as around 56% of Fitch’s rated corporate portfolio in the region have a negative outlook. This is driven mainly by sovereign pressures in Spain and Portugal (BB+/ negative) and by a significant increase of political intervention in regulatory aspects affecting the vast majority of Spanish utilities and their earnings predictability and visibility. However, Fitch has recently also stabilised certain issuers’ outlook, such as Gas Natural.

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