Last week, two Greek high yield bonds were priced on the same day. One experienced Greek banker marvelled: it was the first time two bonds from the country had ever been priced at once, let alone high yield issues.
The borrowers were radically different. Public Power Corp, which raised €700m, is state-controlled and supplies about 80% of Greece’s electricity. It last issued a bond in 2000, when it was rated Baa1/BBB+.
The other borrower, Intralot, makes gambling machinery and software. It is a classic high yield issuer, with high leverage to match, but has very international sales, with only 10% of Ebitda in Greece.
For high yield investors in Europe and the US, both are welcome, and many of their compatriots.
Two days after those deals came Hellenic Petroleum, the country’s largest oil refiner, with a $400m deal – only for two years, but then it only paid 4.625%.
The other refiner, Motor Oil, began a roadshow today for a €300m five year bond. And Yioula Glassworks, rated Caa3/CCC-, is looking for €180m.
This remarkable flowering of deals comes as the mood in Greece is noticeably lifting. Shops are reopening, the tourist industry is hoping for record bookings this summer, and in the capital markets, investors are pouring money into Greek banks’ equity and bond issues, and the sovereign’s triumphant €3bn bond return.
But give credit where credit’s due. The high yield market is not just jumping on the bandwagon.
High yield leads the way
We all know the script: the sovereign in an emerging market – which Greece now officially is, according to index providers – opens the way for banks and companies to follow.
In Greece’s case, it was the other way round.
In 2012, bond issuance from Greece collapsed to a mere €856m. Apart from one tiny deal in the middle of 2013, the country’s banks were shut out of the market from October 2012 to February 2014.
Securitization stopped a year earlier, in September 2011, and the sovereign had not issued a syndicated bond since March 2010.
Greece’s capital markets recovery began with the equity market, which bottomed in June 2012, and then with high yield. In December 2012, yoghurt maker Fage and Titan Cement issued a combined €390m.
The next year brought an astonishing spate of Greek high yield deals, as national champions like telco OTE and Hellenic Petroleum joined shipping firms and unusual credits like Frigoglass, which makes soft drinks fridges.
That run has continued this year, culminating in the present five-deal extravaganza – though the headlines have been grabbed by the more significant milestones of Piraeus Bank, National Bank of Greece and the Hellenic Republic’s bond issues.
Loan market never died
Bonds ride to the rescue is the perfect narrative for investment bankers, who love the idea that bank lending is dying and the capital markets are the new source of funding for companies.
That narrative is greatly exaggerated much of the time, but in Greece, the high yield market certainly did throw companies a lifeline when they desperately needed one. Thank heavens for the red-blooded risk appetite of all those striped-shirted hedge fund managers in New York and London.
But bankers’ anecdotes about the death of loans always need to be fact-checked. And Dealogic tells us that syndicated lending to Greek borrowers dipped earlier than bond issuance, but recovered in 2011 and kept going right through the crisis.
Between 2010 and 2013, Greek companies raised €14.4bn with syndicated loans, against €6.5bn with bonds.
The alacrity with which companies have been issuing bonds since 2013 shows this funding source is sorely needed in Greece. But loans were there too, even if they were painfully hard to come by as the market staggered.
Loan provision is likely to recover more strongly this year, as all the Greek banks have gone through a second round of equity recapitalisation that is supposed to cover all their needs up to and through the Asset Quality Review.
And foreign banks, many of which savagely cut Greek exposure in the crisis, are now more open to lending again, because the sovereign’s bond has re-established a risk-free rate off which they can price deals.
Greece’s long lending freeze is at last beginning to thaw.