Investors trusting Greece again? Company sells bond at 8%

Investors are buying Greek risk again. That is the message that OTE, the country’s leading telecoms company, sent to politicians and the market

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Having been shut out of the bond market for nearly two years, OTE returned with a convincing €700 million ($959 million) 5-year deal, sold in just two days.

The smooth ease of the sale, with only investor calls and no long roadshow as preparation, astonished many high yield specialists.

But bankers and investors alike were not surprised that OTE had managed a capital markets comeback.

In December, yoghurt maker Fage brought Greek corporate risk back to the public bond market with a $250 million high yield issue, and Titan Cement completed an exchange offer that involved issuing €200 million of new notes.

Since then, Greece’s 10-year sovereign yield has even come down to almost 10% — it was 30% in May, while OTE’s 2016 bond yield peaked at 23.5% in June.

Unlike Fage and Titan, OTE is not an exporter that can earn hard currency revenue and even manufacture overseas.

It has some businesses in the Balkans, but its main activity is telephony in Greece — so it is fully exposed to the risk of Greece leaving the euro. Mitigating that, OTE has Deutsche Telekom as a 40% shareholder.

Despite the obvious challenges, this week OTE paid just 8% to borrow, in a deal that attracted more than €1.9 billion of orders — a clear sign that many investors now believe Greece will stay in the single currency.

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"It’s a landmark transaction," said a banker at one of the bookrunners. "It’s a huge size for a Greek issuer that since April 2011 hasn’t had access to the capital market."

Bookrunners BNP Paribas, Deutsche Bank and HSBC announced the transaction on Tuesday as a benchmark and sold €700 million with a 7.875% coupon at 99.493 on Wednesday. That was the tight end of the 8%-8.25% yield guidance released on Wednesday morning.

"It was a fantastic result for the company," said the banker. "OTE was the first Greek issuer to sell a deal internationally in euros. Fage was in dollars and Titan’s exchange offer was mainly domestic."

The once-investment grade issuer, now rated Caa1/B-/B-, found a following among high yield investors and some high grade accounts, which had followed the credit over the years.

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