Apart from the machine-like dollar market, Swiss franc bonds have been one of the few untroubled channels for corporate funding amid the alarm pervading Europe since the sovereign crisis kicked off about 1,000 months ago.
Swiss investors’ addiction to corporate bonds, which started last year, looks set to continue, as deals from ABB, GE Capital, Vinci and Adecco got the market off to a busy start last week.
The more sovereign, supranational and agency borrowers were alienated from this market in 2011 and got slammed in secondary trading, the more corporates had a chance to shine.
The times when Swiss investors would stick religiously to double-A or triple-A rated borrowers are long gone. They now welcome deals from many countries, in a wide range of formats and with surprisingly low ratings — keenly aware that many companies’ prospects look stronger than those of states or banks, and that with domestic govvies often costing money to own, they need to look to new places for yield.
Strong companies from emerging markets often have more appeal than ones from core European countries such as France. Nevertheless, Baa1/BBB+ rated Vinci, the French construction and concessions group, managed to sell Swiss franc debt in the week when France was facing the fire of a potential downgrade.
Investors have ventured into the new territory of foreign hybrid capital, buying a Sfr250m deal from RWE — the first time the German utility had bothered to issue in Switzerland since 2003. Only domestic borrowers Hero and Aryzta had pulled off hybrid deals before.
The Swiss investor base even embraced last year the first ever foreign high yield transaction, from HeidelbergCement — heresy!
Long time no speak
Companies which had never issued in Swiss francs before, or hadn’t since 1750, started realising at the end of last year how there was more than chocolate, snow and watches to Switzerland, and perhaps they should stop ignoring the market.
Swiss investors were buying corporate paper without much premarketing and yields were and remain ridiculously low — the perfect combination.
Return visits by Telstra, Philip Morris International and Schindler were all welcomed with open arms.
There was also a flurry of investor meetings that have yet to bear fruit in deals. Air France, Amcor, Banque PSA and Korea Telecom all visited Switzerland to prepare for their debut issues. This week SPI Electricity & Gas, an Australian networks business, is doing the same.
And today, UK airports group BAA — which had to pull a sterling deal and a euro one in the autumn because of inclement markets — raised Sfr400m of 2.5% five year bonds at 200bp over mid-swaps.
Swiss investors can be capricious — they still consider financial institution borrowers untouchable (apart from Rabobank — surprise!) and SSAs find only sporadic demand.
So while they remain on a pedestal in Switzerland, corporate borrowers should make the most of it. Of course, Swiss pockets are not bottomless — the average size of the 53 investment grade corporate deals last year was Sfr258m (€210m).
But the Sfr13.7bn (€11.1bn) total was more than a 10th as big as the euro market. If it makes sense for borrowers like GE Capital, GDF Suez and Enel, there are many other treasurers who should consider it.