Hybrid puzzle leaves treasurers dazed and confused
Hybrid corporate bonds might be the new hot product of the Eurobond market but originators’ hopes for a deluge of new issues have not been fulfilled.
Hybrid corporate bonds might be the new hot product of the Eurobond market but originators’ hopes for a deluge of new issues have not been fulfilled. Far from it – just a handful of public deals have hit the market since the start of the year.
Of course any new product takes time to catch on, and it is certainly not for want of trying. But it appears that the marketing techniques of investment banks have left treasurers dazed and confused rather than champing at the bit.
One corporate treasurer recently told Euromoney that he had received 18 unsolicited proposals for a hybrid transaction from investment banks. He thought that eight of these came from “credible” institutions (he declined to categorize the other 10). Even so, the range of spread indications that these eight banks then offered on the pitches was incredibly wide – as much as 60 basis points from the tightest to the widest.
That lack of consensus undermines treasurers’ confidence in awarding mandates. Having a clear idea of fair value is extremely important for funding officials as they do not wish to be associated with mispriced transactions.