[ 2015-01-28 ]

Unilever sells €750m bond at 0.5% yield
Unilever took advantage of the market’s positive
response to quantitative easing by the European
Central Bank to issue a €750m corporate bond on
Tuesday with a coupon of just 0.5 per cent, one of
the lowest on record.

The consumer goods company — producer of brands
from Lipton tea and PG Tips to Ben & Jerry’s ice
cream — was able to price the seven-year bond
just 17 basis points above midswaps, the European
pricing benchmark.

Bankers on the Unilever bond — Deutsche Bank,
Goldman Sachs, JPMorgan and UBS — said this was
down from an initial indication of a 25bp spread,
which was lowered after the bond quickly attracted
an order book of more than €3bn.

Ed Mulderrig, who works on the corporate debt
syndicate at UBS, said investors had been fixated
on the European Central Bank and Greece for the
past month. But the ECB’s decision last week to
press ahead with quantitative easing had been
positive for the market and the Greek election had
produced a result and a coalition.

“Now those variables have been taken off the
table, Unilever has opened the door for other
corporates to follow suit, given the amount of
cash waiting on the sidelines and the dearth of
corporate issuance so far this year,” Mr
Mulderrig said.

Bankers believe there could be a rush of companies
selling bonds in the current benign environment,
as in a few weeks they will start to enter
voluntary “blackout” periods when they do not
issue close to publishing their annual results.

Unilever has opened the door for other corporates
to follow suit, given the amount of cash waiting
on the sidelines and the dearth of corporate
issuance so far this year

- Ed Mulderrig, UBS
Suki Mann, head of European credit strategy at
UBS, said frustrations were going to mount for
corporate bond investors as the plunging level of
yield on government bonds would see more money
looking for a home in their asset class.

Mr Mann said investors were already faced with a
corporate bond market where around 70 per cent of
investment grade non-financial debt outstanding
yielded less than 1 per cent — up from less than
60 per cent just three weeks ago. In the double-B
sector of the high-yield market, fewer than 60 per
cent of corporate bonds yield more than 2 per cent
— compared with 67 per cent at the end of
December.

“Compression, capitulation, Japanification,
Germanification, desperation — call it what you
will,” said Mr Mann. “We believe the trend
will continue as investment grade investors are
crowded out of their territory and they, as well
as others, are looking for higher yields lower
down the rating spectrum and in longer maturity
paper.”

Source - Financial Times - UK

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