Huge Demand for Portugal's First Corporate Bond in 18 Months

-- EDP is first Portuguese company to raise funds in bond market in more than 18 months

-- Big success with up to EUR7.5 billion orders from investors for EUR750 million deal

-- Companies from weaker European economies tentatively readmitted to credit markets

 
   By Serena Ruffoni 
 

Portuguese utility Energias de Portugal (EDP.LB), or EDP, received blowout demand for its bond offering Friday, in a deal that marks the first foray into the bond market by this country's companies in 18 months.

The 750 million euro ($970 million) issue drew some EUR7.5 billion of orders from 475 investors, bankers involved in the deal said. While the deal was initially expected to yield around 6.25%, the strength of demand squashed that return to 5.875%. The deal will be priced and sold later Friday.

The strength of demand on the deal acts as further evidence that the European Central Bank's plan to help trim borrowing costs for weaker euro-zone states has soothed investors' nerves and helped companies in bailed-out countries to fund themselves at affordable levels.

Portuguese companies have been shut out of the bond market since February 2011, when the country's public debt problems bit hard on its government bonds. The country was bailed out in May of that year.

"Everybody who can buy into EDP's bond is now buying it, after a year in which everybody hated it because of Portugal's economic and debt problems," said Tatjana Greil-Castro, fund manager at Muzinich & Co in London, which has $17 billion under management.

"It's very important for Portuguese companies to show they can freely fund themselves, and just like Spain's Telefonica bond issue last week, it's a big step in the direction of normalizing credit markets," she added.

Ratings on EDP's bond are Ba1 from Moody's Investors Service Inc., BB+ from Standard & Poor's Corp. and BBB- from Fitch Ratings.

Barclays PLC, BNP Paribas SA, Credit Suisse AG, ING, Mizuho Financial Group Inc., Societe Generale SA, Banco Espirito Santo SA and Millennium BCP are the banks handling the deal.

The resurgence in interest for Portuguese corporate debt is in line with a brighter tone across Europe's credit markets as a whole, where the cost to investors for insuring against company or government debt defaults has fallen sharply.

The iTraxx Europe Crossover index, which tracks debt-insurance costs for 40 mostly sub-investment-grade European corporate borrowers, was 41 basis points tighter Friday at 455 basis points, representing the cheapest debt-insurance costs since the start of August last year.

Italian government debt insurance costs briefly fell to their lowest in 14 months in early trading Friday, clipping 300--a level under which it hasn't closed since July last year. Italy's CDS are now trading around 311 basis points, six basis points tighter on the day, Markit says. That means it now costs $311,000 a year to insure a nominal $10 million in five-year Italian debt against default.

(Ben Edwards in London contributed to this article.)

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