Investment grade companies in the Netherlands have fared far better than many other borrowers across Europe over the last few years. As corporate credits, they have appeared increasingly attractive compared to volatile sovereign and financial names, while hailing from one of the better performing countries on the Continent has meant that they have avoided much of the financing pressure that has hurt borrowers from peripheral nations.
But with market consolidation increasing and emerging market companies growing in influence, the dynamics at work in the Dutch corporate landscape have changed greatly since the beginning of the financial crisis in 2008.
"For decades we have seen Dutch companies buying companies in the emerging markets and in the US now the coin has turned," says Marco Roddenhoff, global head of capital markets at Rabobank in Utrecht. "This year weve seen UPS buying TNT Express, Mexichem taking over Wavin and América Móvil taking a chunk out of KPN. The picture in the Netherlands is becoming a bit bleaker as you look at the number of listed companies, and therefore we are extremely happy to see names like DE Master Blenders 1753 return to Euronext Amsterdam."
The coffee and tea maker Douwe Egberts has been spun off from US food maker Sara Lee as DE Master Blenders 1753 in a deal arranged by Deutsche Bank, JP Morgan and Rabobank. Deutsche Bank and Rabobank also co-ordinated a 750m five year revolver supporting the spin-off, a facility that lenders of seven nationalities provided.
Knowing that they have the support of bank lenders has made some Dutch companies begin to look more seriously at the possibility of acquisitions again. Randstad, the human resources firm that bought US rival SFN Group in July 2011 for $771m, proved the depth of demand from banks for new money facilities when it self-arranged a 1.05bn revolving credit facility to support the takeover.
The initial bank group on the five year plus one plus one revolver was illustrative of the blend of local and international lenders that operate in the Netherlands. ABN Amro, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Bank of America Merrill Lynch, Commerzbank, ING, and Svenska Handelsbanken were bookrunners on the deal, signing into the facility before it was sold more widely in a general syndication in August.
Commodities trading firm Gunvor Group also received the support of its bank lenders during its $400m purchase of a third of US-based thermal coal miner Signal Peak Energy. The $250m acquisition line was underwritten and arranged by BNP Paribas and RBI.
"Some corporate borrowers have had a difficult period and had to restructure their balance sheets, but now many are looking at big acquisition targets and how they will fit into the business models," says Roddenhof. "Theyre looking to selectively add on to their businesses. The ability for good corporates to raise liquidity and to execute equity transactions is staggering."
The level of liquidity available to Dutch borrowers across various capital markets has been clearly demonstrated in recent deals. In the equity market, cable firm Ziggo re-opened the sector for both Dutch and wider European borrowers when it launched its 925m IPO in March one of the first equity deals of more than $500m in Europe for eight months and one of the first in the Netherlands after a drought of almost three years.
In the public bond market in the same month, Heinekens first deal as a rated company (its Baa1/BBB+ ratings having been assigned by Moodys and Standard & Poors the week before) attracted over 12bn of demand across two tranches. The deal, led by global co-ordinators Credit Suisse and ING and bookrunners BNP Paribas, HSBC and Rabobank, was finalised as an 850m seven year bond priced at 75bp over mid-swaps and a 500m 12 year line at 115bp over. Both tranches came about 10bp through the borrowers existing curve.
These two deals illustrate the strength of demand for Dutch corporate names across the European investor base. Ziggos IPO received plenty of interest from both domestic institutional and retail accounts as well as from investors across Europe, while 87% of Heinekens seven year bond and 92% of its 12 year paper was sold outside the Benelux region. The largest percentage of both tranches went to German and Austrian accounts.
But while Dutch companies still get good traction from international investors, their own domestic accounts have subtly shifted their focus back on to their domestic market.
"In the Netherlands, weve got an extremely strong pension industry with over 900bn in assets," says Rabobanks Roddenhof. "Historically, during the guilder years, those accounts invested predominantly in Dutch names. When the euro came along it opened up a bit and they diversified their portfolios across Europe. But since the crisis weve seen that investor base tentatively move back with a stronger domestic focus. This picture is also witnessed with the Dutch insurance companies."
Bonds vs loans
The dual tranche deal from Heineken was the first time the brewing firm had accessed the Eurobond markets since 2009. However, the corporate financing shift from bonds to loans seen across Europe over the past two years has been less pronounced in the Netherlands. In 2011, the volume of syndicated loans ($59.9bn from 85 deals) outstripped the amount of corporate funding raised in the bond market ($13.3bn from 21 deals).
As Herald Top, European head of corporate debt capital markets at Rabobank in Utrecht, points out, the make-up of the Dutch corporate sector means the public bond market is not always the first port of call. "The top 15 or 20 companies in the country are very large cap firms, and they clearly tap the bond markets frequently," he says. "Beyond that, there are a lot of mid-market firms (although these are still big companies). For these names, the US private placement market is often a first financing step, and theres quite a lot of issuance there from the Netherlands compared to other jurisdictions, because borrowers dont need a rating."
Heineken has been one of the most frequent issuers in the US PP market in recent times in May 2010 it sold a $725m August 2018 note, while in September 2011 it issued a $90m October 2017 deal with a 2.75% coupon.
Over recent months, banks across Europe have seen their ability to lend constrained, both by the impact of their own increased funding costs and by the effects of forthcoming Basel III regulations. In many regions this has meant that banks have chosen to retreat to focus the bulk of their lending capacity on their own domestic markets.
However, corporate borrowers in the Netherlands have bucked this trend somewhat, and continue to be well supported by international lenders as well as, of course, the local institutions.
According to data provider Dealogic, over the first half of 2012 Deutsche Bank was the most active bookunner operating in Benelux, participating in 21.4% of deals, followed by Citi and Commerzbank.
This widespread depth of demand for Dutch loan paper has enabled borrowers from the region to price some of the tightest revolving credit facilities seen in the market over the last 18 months. Last summer, when Belgiums Anheuser-Busch InBev more than halved the margin on its $8bn revolver, few banks dropped out of the deal, with many saying that the prospect of juicy cross-sell business from the borrower was too tempting to turn down.
The self-arranged amendment saw the pricing on the deal cut from 97.5bp to 45bp, but lenders stayed in the deal in the hope that the recently upgraded credit would continue its acquisition push the borrowers takeover of Anheuser-Busch was extremely profitable for many of the lenders involved.
Earlier in 2011, Dutch electrical group Philips (A3/A-/A-) was able to exploit improving market conditions to cut the pricing on a 1.8bn five year revolver completed only the year before, slashing the margin from 75bp to 40bp and adding two one year extension options.
Later in the year, despite the volatility caused by the worsening eurozone crisis, chemicals firm Akzo Nobel (Baa1/BBB+/BBB+) was able to price its 1.8bn five year revolver with a margin of just 45bp over Euribor. Both Philips and Akzo Nobels transactions were provided by syndicates made up of domestic and international lenders.
But while the best Dutch investment grade companies have received continued support from their banking syndicates, they have also been able to issue successfully in the bond markets.
Although the wider volatility has meant that issuance has often been reserved to windows of calm between market storms, many Dutch borrowers have proved adept at exploiting these opportunities. Telecoms firm KPN re-opened the euro-denominated bond market last September after six weeks of no issuance with a 500m 10 year bond through ABN Amro, Bank of America Merrill Lynch and Royal Bank of Scotland.
The borrower also delicately choreographed the timing of its next euro transaction in February: with a 1bn redemption looming at the end of the year and apparently unaffected by its downgrade by Standard & Poors from BBB+ to BBB with a stable outlook the week before, the cautious borrower chose to issue a 750m 10 year bond through bookrunners Citi, ING, Société Générale and UBS.
KPN, like many other borrowers across the Netherlands and Europe, has also diversified into different currencies. In November last year, it made a rare visit to the sterling market, once again taking advantage of an open issuance window in the UK to price a £400m 15 year bond at 242bp over Gilts through Barclays Capital, Credit Suisse and JP Morgan.
Further away from home Unilever, the British and Dutch consumer products manufacturer, became the first European corporation to sell bonds in the offshore renminbi market, issuing a Rmb300m ($45.7m) three year deal with a 1.15% coupon in March last year. With this transaction, the A1/A+ rated borrower opened up the market for other European corporates such as Volkswagen, BP, Tesco and Air Liquide.
Funding diversification, such as venturing into the US PP market or tapping into renminbi, is an eminently sensible strategy for Dutch companies, but the process is far from complete."Diversification is an ongoing issue," says Top. "Its only just started, and going forward people will have to be far cleverer about looking at alternative funding sources. But where there are opportunities, corporate borrowers are willing to look at them."