Volumes in the retail and consumer goods market surged in 2001. Outstandings from the sector grew by 80% on the previous year and outperformed percentage growth in the whole market four fold. But some issuers were more active than others. Koninklijke Ahold (Ahold) and Marks and Spencer (M&S) issued trades totalling $6.11 billion last year - an increase of 158% on their combined 2000 figure. But despite the issuers' success, both borrowers complain of tough market conditions. "Even before September 11 we found it very difficult," says an official at M&S. "We doubled the levels that we were posting at the beginning of the year but it was still hard to place paper - particularly with the Japanese investors being absent." Andre Buitenhuis, senior vice president, finance and fiscal affairs at Ahold, agrees. But he maintains that Ahold did not make concessions with its levels. He says: "A major problem last year was the bumpiness of the markets. But I expected it would be a lot worse after September 11 than it actually was. Of course investors were more cautious and reluctant but we had no real problems placing paper. We did not have to make compromises. We are in the food business and it is a defensive sector. Our spreads did not balloon out - they came in." M&S has closed 28 trades since the start of 2001, the largest number in the retail and consumer goods sector, and more than half of these trades came after September 11. An official, at M&S, admits that placing paper was tough in the first half of 2001 but that after favourable publicity from the press, market conditions greatly improved. He says: "Towards the end of 2001, after our public sterling issue, things certainly kicked off. Things had started to turn around for M&S and the press began reporting good news instead of bad - this was very good for investor confidence." And the good news continues. On Tuesday Moody's revised M&S's A3 long-term outlook to stable from negative. The agency said that the change recognizes a recovery in the company's sales and operating performance in the third quarter of 2001 and over the Christmas season. But John Hatton, managing director at Fitch Ratings, thinks the change is a little premature. He says: "We are waiting for more consistent data before we change our negative outlook on M&S. There has certainly been an improvement to show an M&S recovery but we had already taken into account some of that potential uplift. We will wait a bit longer." The Baa1-rated Ahold closed 70% of its 2001 trades before September 11. It has issued $4.44 billion since the start of 2001 and is the biggest borrower in the sector in terms of outstandings. But, unlike M&S, a large proportion of Ahold's funding came from the public markets. Four of its 10 trades were public issues and Buitenhuis, at Ahold, points to the ease of issuance in the public markets as a reason. He says: "We have very good access to the public markets and find it easy to raise the amounts that we require. Our preference for the public market ahead of the private market has got nothing to do with levels - simply amounts. We find we mostly issue during a time of acquisition and, when we do, it has to be large." But Ahold made its last issue in December 2001 and is now concentrating on organic growth. It has no immediate plans to come to the market and the same is for M&S, which after a run of six issues in 2002 will now reduce its trading. But despite this, volumes in the sector are up in 2002 compared to the same period last year. Whether it can maintain the rapid growth of 2001, with the absence of its most active and largest issuers, is questionable.
February 08, 2002
