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People and MarketsCommentLeader

You don't always want what you want

Spice Girls

Investors complain often and vocally about so many aspects of new issue execution. Often their complaints fall on deaf ears, sometimes they are acknowledged, and occasionally they are acted upon. This week an issuer considered complaints that had rung in their ears for over a year, only to find investors did not want what they said after all.

Investors have not been happy with the established marketing process for corporate bonds, which often sees bonds price 20bp-30bp tighter than initial price thoughts.

Some investors have demonstrated their frustration by not placing orders until price guidance is published, while others have placed orders that stage, only to pull them once the level is tightened.

So this week Vodafone and its syndicate offered a new approach. They dispensed with initial price thoughts, giving investors a 10bp range for a new 10 year €500m no-grow deal and a 5bp range for a €150m tap of an existing deal, and telling investors both tranches would be priced in those ranges.

Did investors appreciate the clarity? No. The order book plodded along and both tranches were barely covered. Meanwhile, another 10 year deal with a similar spread, following the traditional process, tightened pricing 15bp-20bp and built a €1.2bn order book. Hardly a resounding thank you for the effort Vodafone’s team had made.

The grass may look greener on the other side, and investors may tell you it is greener, but getting them to eat it is a different matter. Maybe it was the suspicion of something new. Maybe investors just couldn’t let go of the comfort blanket of a process they grumble about, but ultimately understand.

Then again, maybe syndicates and issuers should just tell investors what they want rather than giving them what they think they want.