ESB sold €600 million of 15-year bonds on Tuesday as it seeks to refinance more expensive short-term borrowings and take advantage of strong demand for corporate debt as the European Central Bank steps up its plan to revive eurozone inflation and growth.
The State-owned energy company is seeking to buy back bonds that are due to mature next year and in 2019, which carry a higher coupon than the new debt it has placed. Owners of the €300 million of outstanding 2017 debt and €500 million of 2019 securities have until June 7 to sign up the the redemption.
ESB initially sought to raise €500 million in the bond market on Tuesday but decided to increase it on the back of strong demand for the issue, according to market sources. The new bond was priced to carry a coupon, or interest rate, of 1.875 per cent, compared to a 4.375 per cent coupon on its 2019 notes.
Demand for euro-denominated corporate debt has surged in recent weeks as the ECB prepares to include investment grade company debt this month on its quantitative easing bond-buying programme. The challenge facing the ECB to boost inflation towards its goal of close to 2 per cent was underscored on Tuesday when Eurostat, the EU’s statistics office, revealed that consumer prices fell 0.1 per cent year-on-year in May.
“ ESB’s new €600m deal shows the markets support for one of the best performers in the [European utilities] sector,” said Joseph McGinley, an analyst with Davy in Dublin.
“Unlike many of its European peers it has limited exposure to commodity pricing - with the majority of earnings coming from regulated activity - making them attractive to investors and rating agencies alike.”
ESB warned in a prospectus that accompanied the bond sale that the prospects of the UK leaving the EU following a Brexit referendum on June 23 would have “an adverse impact on the group’s operations, prospects and/or financial condition.” The energy industry has operated as a single market across the island of Ireland since 2007. It has also committed to build its presence in Great Britain under an “all islands market”.
ESB’s operating profit before exceptional items rose to €635.4 million last year from €552 million in 2014. Its revenues exceeded €3.3 billion in 2015, according to its annual report.
Spanish banking giant Banco Bilbao Vizcaya Argentina, BNP Paribas of France, Danske Bank and Royal Bank of Scotland were the leads on Tuesday’s bond sale.
