The selloff in bond markets isn't deterring corporate issuers around the world from heading to Europe to take advantage of borrowing costs that are less than half of those in dollars.
For the first time since at least 2009, companies based outside the 19-nation euro-area have sold more notes in the single currency than those within it, according to data compiled by Bloomberg. Foreign investment-grade borrowers, excluding financial firms, have raised 68 billion euros ($76.5 billion), more than double the amount sold in the same period last year and exceeding 52 billion euros by local issuers.
Sales are surging as the European Central Bank's unprecedented stimulus keeps the region's borrowing costs near record lows — even amid a rout that's erased $433 billion of value from global bonds in less than a month. Asset manager Blackstone Group sold euro debt for the first time on Tuesday, U.S. Scotch tape maker 3M Co. is issuing in the currency on Wednesday and Australian toll-road operator Transurban Group is among those in the pipeline.
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"Although it's more expensive than a few weeks ago after this violent move, from an historical perspective if a company can lock in long-term financing at these levels, it's still doing well," said Mitch Reznick, co-head of credit at Hermes Investment Management, which oversees $44.5 billion.
Average yields on investment-grade bonds in euros rose to 1.14 percent from a record low of 0.85 percent on March 10, according to Bank of America Merrill Lynch index data. That's down from 1.62 percent a year ago and compares with 3.14 percent for similar securities in dollars, the data show.
The surging issuance is being led by borrowers based in the U.S., where the Federal Reserve is talking about raising interest rates for the first time since 2006. American issuers have sold 26 billion euros of bonds in 2015 and now represent 12 percent of Bank of America's euro non-financial index, up from 7 percent a year ago.
Blackstone, the largest manager of alternative assets such as private equity and real estate, sold 300 million euros of bonds on Tuesday. U.S. audio equipment maker Harman International Industries Inc. and U.S. drugmaker Eli Lilly & Co. are also planning to sell bonds in euros for the first time.
Perfect Storm
"We like issuing in the euro market because it offers us a hedge against the translation of foreign earnings, exposes us to a broader set of investors, and lately has offered an attractive coupon differential versus the U.S.," Keith Woodward, senior vice president and treasurer at General Mills Inc. said by e-mail on Tuesday. The maker of Cheerios, Bisquick and Yoplait, last month sold 900 million euros of notes.
Borrowers from Asia to South America are getting in on the act, too. APA Group, Australia's largest gas pipeline owner, sold euro bonds for the first time in March to partly fund its purchase of a pipeline from BG Group Plc for about $5 billion.
"It was a perfect storm," Peter Fredricson, APA's chief financial officer, said in a telephone interview. "We needed funding for the acquisition, European investors are starting to have more interest in Aussie issuers, and pricing in euros looked very compelling."
Borrowing costs also are cheaper for speculative-grade borrowers in Europe, where average yields of 4.04 percent compare with 6.13 percent in the U.S., Bank of America Merrill Lynch Index data show. Yields in euros reached an eight-month low of 3.55 percent in February.
"The cost savings is substantial," said Kurt Ogden, vice president of investor relations and finance at Huntsman Corp., which sold 300 million euros of notes in March. "We will save approximately $11 million annually in lower interest expense."
Corporate bond issuance of 199.5 billion euros this year is up 2.5 percent over the same period in 2014, according to data compiled by Bloomberg. In the U.S., $704.1 billion of company securities have been sold, up 9 percent.
The boom in issuance is set to continue, according to Marco Baldini, the London-based head of European corporate and sovereign, supranational and agency syndicate at Barclays Plc, the biggest arranger of the bonds from companies domiciled outside the euro-area.
"There are many more companies that could be attracted by low interest rates in euros and they haven't shown their hand yet," he said. "Everyone wants to talk about issuing in euros."
Bloomberg News
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