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Adolescent market down but not out

The euro-denominated corporate bond market kicked off last year in euphoric, uncritical mood. This year investors have become more choosy and demanding, and the glut of telecom issuance has distorted pricing. Ben Beasley-Murray reports

Author: Ben Beasley-Murray So far it has been a tough year for the European corporate bond market. An environment of rising interest rates, intensified event-risk anxiety and continued poor performance of the euro against the dollar have hampered new issuance. The previous year, by contrast, volume of issuance and demand for corporate euro-denominated paper easily exceeded expectations. Reports of the death of the market are exaggerated, however: although investors are not going to revert to what was sometimes undue enthusiasm, positive sentiment is returning.

Deutsche Telekom’s giant issue in June is a good indication that there is still ample demand for European corporate paper. The company launched a multi-tranche, multi-currency issue to the tune of $14.6 billion, almost double the amount initially planned. The deal exceeded by 49% the previously largest global bond offering, Tecnost International’s e9.45 billion ($9.77 billion) issue. As well as $1.4 billion worth of sterling and $853 billion of yen, e3 billion were sold by Deutsche Telekom, to fund expansion and the costs of buying third-generation UMTS mobile phone licences. At the end of July, Telekom bid for a cross-border acquisition, offering $50.7 billion for US telecom company Voicestream.

“Despite what everybody has been saying about difficulties in the market, deals are still getting done and being very well placed,” says Paul Cohen, syndicates manager at BNP Paribas.

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