While France, Finland and Germany are rated triple-A by Moody?s and Standard & Poor?s, S&P still rates Spain AA+ ? but investors have been impressed by the government?s fiscal discipline and Spain?s 2.8% economic growth rate, well above average for the euro zone.
Lead managers BBVA, Calyon, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort Wasserstein and SCH amassed a book of Eu14.2bn and priced the bond at 8bp over the July 2014 Bund.
That equated to mid-swaps minus 7.5bp. At the time, France was trading at minus 7bp and Finland at minus 7.5bp. The deal also came about 1bp-1.5bp through Spain?s own curve.
José María Rodriguez Fernández, the Spanish Treasury?s deputy director-general and head of debt, highlighted two crucial factors in the deal?s success.
?First, a sound and disciplined policy mix, based on fiscal consolidation and structural reforms,? he said. ?Thanks to this strategy, Spain has grown at a faster pace than its euro peers in the past and it will most likely continue to do so in the future. Investors favour such economic and fiscal performance and hence they buy our debt at those competitive levels.?
Rodriguez then mentioned the Tesoro?s transparent funding strategy, based on predictability and simplicity.
?Our aim,? he said, ?is to satisfy investors? demand by issuing standard securities and ensuring a widespread distribution for the debt and a highly liquid debt market. Our primary dealers, particularly the bookrunners for this transaction, have done a great job that ultimately has contributed to its success.?
Spain signalled the deal to the market in June when it announced a buyback programme and the cancellation of its 10 year auction.
The bond was launched on Monday with initial price guidance of 7bp-10bp over Bunds. By Monday?s close the book had reached Eu10bn, allowing the leads to revise guidance to 8bp area, and, with the book at Eu14.2bn, the deal was priced on Wednesday at plus 8bp.
The lead managers said the early momentum came from hedge funds and banks but once the deal was seen to be a success, real money accounts came in and the leveraged accounts were heavily scaled back.
Final distribution was asset managers 40%, banks 37%, insurance and pension funds 17% and central banks 6%.
Seventy percent of the bonds were placed with non-resident accounts, achieving the kingdom?s target of expanding its investor base so that 45% of outstanding bonds are held by non-residents.
Spanish investors bought 30% of the issue, UK buyers 18%, French and Germans 25%, the rest of Europe 19%, Asian investors 6% and North American accounts 2%.
Despite the aggressive pricing, the bond tightened by 0.25bp-0.5bp in the aftermarket.
Rodriguez said using the syndicated route had helped Spain widen its investor base, attract attention to its debt and improve liquidity in its long tenor bonds.
?Syndication does not necessarily ensure better funding levels in the short term but it certainly helps you to market your debt,? he said. ?And in the long run, building this large franchise of international investors allows a sovereign issuer to minimise its funding costs.?
Spain?s funding plans for the rest of the year comprise Eu23bn of Letras (T-bills) and Eu15bn of Bonos and Obligaciones.
While the Tesoro will continue to auction its three, five, 10, 15 and 30 year benchmarks, Rodriguez said the kingdom might issue a new 15 year Obligación del Estado in the second half of the year or in the first quarter of 2005.
