European Firms Head East for Bonds
April 05 2017 - 01:14PM
Dow Jones News
By Nina Trentmann
More European companies are tapping Southeast Asian bond
markets, in a move to diversify their sources of funding.
They are following their U.S. peers -- to Taiwan, Singapore and
Hong Kong -- as strict regulations on capital exports make it less
attractive for European firms to raise capital in China.
European companies in the first quarter issued 25 so-called
"Formosa" bonds worth $7.9 billion in Southeast Asia, according to
data provided by Dealogic. The majority of bonds were issued in
Taiwan.
Telefónica SA, the Spanish telecommunications firm, at the end
of March raised $200 million, through a private placement in
Taiwan, a first for the company. The deal is part of Telefónica's
ongoing efforts to strengthen its balance sheet with long-term
financing, a spokeswoman said.
"We are detecting a growing interest from Asian investors in
European issuances," she said.
Telefónica's debt sale comes on the back of earlier issuances by
Vodafone Group PLC in February and by Electricite de France SA in
the fall of 2016. A number of European banks, including Barclays
PLC and HSBC Holdings PLC, also recently sold bonds in Asia.
European firms still trail their U.S. counterparts -- U.S.
issuance in Southeast Asia during the first three months of the
year amounted to $9.2 billion -- but the market is growing, bankers
say. Bond sales by U.S. firms tend to be bigger in size than those
of their European peers.
"We are seeing that change now," said Isabelle Toledano, head of
corporate debt capital markets at UBS Group AG in London.
Placing debt in Asia helps European treasurers diversify their
sources of funding, Ms. Toledano said.
Most of the capital raised in Taiwan, Hong Kong and Singapore is
done in U.S. dollars and needs to be swapped back to euros. Still,
the capital comes at a competitive price, said Andrew Wallis,
director at Aroundtown Property Holdings PLC, a German real-estate
firm.
Aroundtown recently raised $400 million, via a private placement
in Hong Kong. It is the third time the firm has tapped Southeast
Asian capital markets.
The surge of these issuances by European firms comes despite
strong availability of capital in their home markets. The European
Central Bank's corporate bond buying program has resulted in lower
yields, making it cheaper for firms to raise capital in Europe.
Issuing in Southeast Asia is complementary to issuing in Europe,
Mr. Wallis said. "We see it as a great add-on to our financing
universe," he said. Aroundtown in 2016 raised nearly EUR2.6 billion
($2.7 billion) in Europe.
However, it takes a while for Southeast Asian investors to get
to know European issuers, said Christophe Salmon, CFO at Trafigura
Group Pte. Ltd., a commodities trading company.
"As a privately-owned company, we require more in-depth analysis
which means it takes time until investors get more familiar with
us," Mr. Salmon said. Trafigura in March raised $600 million in
Singapore.
Raising capital in mainland China, on the contrary, is much less
attractive for European firms.
Foreign companies can -- with the help of Panda-bonds -- issue
yuan-denominated debt in mainland China. However, Chinese
regulators want foreign issuers to spend the proceeds of their bond
sales domestically.
"The use of proceeds is the biggest issue for potential European
investors," said Scott Barton, head of corporate banking at
Standard Chartered PLC in London.
In some cases, the regulator allows the overseas transfer of
capital raised in China, especially if it benefits Chinese
entities.
Veolia Environnement SA, the French utilities firm, in September
2016 was able to take 1 billion yuan ($145 million) out of the
country, Mr. Barton said.
The firm had lengthy discussions with regulators early on.
"Convincing the authorities to allow the transfer of the funds
outside of China was not easy," said Claire Béchaux, Veolia's group
treasurer.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
April 05, 2017 12:59 ET (16:59 GMT)
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