New issues: Appetite soars for long-dated bonds

The market for subordinated bank capital sprang to life on Tuesday as Citigroup and Sanpaolo IMI both issued paper with long maturities.

Demand for long maturities, particularly from pension and insurance funds, and the willingness among most investors to buy subordinate debt to boost returns pushed the yields on offer down in both transactions.

Citigroup, the US bank, launched the longest-dated subordinated bond by a financial institution in the European market to date. The bank sold a bond with a 2030 maturity that can be bought back by the issuer in 2025, giving it an expected maturity of 20 years.

The size of the deal was increased by €250m to €1.25bn after demand from about 200 investors reached €3.75bn. The bond was priced at cheaper levels than where its 2019 issue, which is callable after 10 years, was launched one year ago, the bank said.

"There has been a strenuous reach for duration in the market recently," said Chuck Wainhouse, head of funding at Citigroup. "Not so long ago, issuing 12-year bank capital in euros seemed daring." He added that half of the bank's projected $17bn-$22bn borrowing requirement this year would be conducted in currencies other than dollars.

Sanpaolo IMI, the Italian bank, sold 500m of subordinated notes with a 15-year maturity that can be bought back in 10 years. "Sanpaolo IMI has managed to print subordinated dated bank capital paper at similar levels to where it would have printed same maturity dated senior securities roughly 20 months ago," said Gideon Gent at Banca IMI, which managed the sale with JPMorgan and Merrill Lynch.

In the European corporate market Air Products, the US industrial gas producer, sold €300m of 10-year bonds in the company's first bond issue since April last year. The company priced the bonds to yield 34bp above the mid-swap rate, inside the 35-38bp guidance after demand for the paper reached €1.8bn.

"The rarity of the name, the strong cashflows generated in its industry and the lack of supply in the corporate market allowed the company to price the 10-year bonds very close to its existing seven-year issue," said Julia Killmer at ABN Amro, which managed the sale with HSBC.

In emerging markets, Pemex, the Mexican state-controlled oil company, issued the longest-dated euro-denominated bond by a Latin American borrower.

The company sold €1bn of 2025 notes to yield 160bp above swaps, with demand reaching €4bn.

"The opportunity to buy a quality investment grade name that yielded more than 5.5 per cent was difficult for investors to ignore," said Wayne Hiley at Barclays Capital, which managed the sale with Deutsche Bank.

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