Bloomberg News

Boom Ends for French Utility Debt Issues as Bond Sales Fall

October 13, 2011

(Updates with EDF bond trading in 12th paragraph.)

Oct. 13 (Bloomberg) -- French utilities are steering clear of debt markets, with their bond sales at the lowest since 2007.

Awash in cash after asset sales and three of their biggest bond-issue years, companies from GDF Suez SA, Europe’s largest natural-gas network operator, to Veolia Environnement SA, the world’s biggest water company, raised 2.8 billion euros ($3.9 billion) in the first nine months of 2011, down about 75 percent from a year earlier, data compiled by Bloomberg show.

Executives at Deutsche Bank AG, JPMorgan Chase & Co. and Societe Generale SA expect the market for bond offerings to remain sluggish.

Utilities have “large cash positions so they don’t need to raise a significant amount of money,” said Marc Baigneres, managing director for debt capital markets in Europe, Middle East and Africa at JPMorgan in London.

The industry accounts for 5.3 percent of French corporate debt capital markets operations this year, down from 8.5 percent in 2010 and 30 percent in 2009, according to Paris-based Societe Generale. Utilities raised 28 billion euros in 2009.

Electricite de France SA, GDF Suez and Veolia, the nation’s three largest utilities, had more than 21 billion euros in cash- related accounts at the end of 2010, Bloomberg data show. GDF Suez had 11.3 billion euros, the most since at least 2001, and Veolia held 5.4 billion euros, close to the highest since 2001.

Asset Sales

With the global economy showing signs of slowing, the companies are shrinking operations. Veolia Chairman and Chief Executive Officer Antoine Frerot plans to exit at least 37 countries and sell 1.3 billion euros of assets this year. Veolia, whose shares fell about 50 percent this year, had a first-half loss after writedowns in Italy, Morocco and the U.S.

GDF Suez said in August it will sell a 30 percent stake in its exploration and production unit to China Investment Corp. for 2.3 billion euros to cut debt and take advantage of higher demand for energy in Asia.

Suez Environnement, Europe’s second-largest water utility, sold 70 percent of Bristol Water in the U.K. last month to Capstone Infrastructure Corp. for 152 million euros. The Paris- based company is seeking to cut its ratio of debt to earnings before interest, taxes, depreciation and amortization to about 3-to-1 at the end of the year, from 3.22 in 2010, after the purchase of Spain’s Sociedad General de Aguas de Barcelona SA.

De-Leveraging

“Companies are deleveraging and consolidating their balance sheets,” said Michael Haize, head of capital markets & treasury solutions France & Benelux at Deutsche Bank in London. “They have had intense restructuring.”

EDF, Europe’s largest power producer, didn’t sell any debt securities this year until Oct. 10 when it issued 1.25 billion pounds ($2 billion) of 30-year bonds.

The Paris-based company’s 1.4 billion euros of 5.625 percent bonds due January 2013 have gained, with the yield premium investors demand to hold them rather than similar- maturity government debt falling to 125 basis points from about 269 basis points when they began trading in November 2008, according to prices on Bloomberg Bond Trader.

GDF Suez raised 300 million euros in March from a sale of bonds due in 100 years, the longest-dated issue of senior, unsecured debt in the European currency by a corporate borrower. JPMorgan and Bank of America Corp. arranged the deal.

EDF spokeswoman Carole Trivi declined to comment on the company’s debt plans. GDF Suez SA spokesman Jerome Chambin and a spokeswoman for Veolia couldn’t provide immediate comment.

‘Sign of Optimism’

While interest rates are low, with the European Central Bank leaving the benchmark rate at 1.5 percent during a meeting this month, bankers say that’s not driving the market for debt.

“If interest rates are low, that’s great, but if you don’t need a new house, you won’t buy one just to borrow at a low rate,” said JPMorgan’s Baigneres. “It’s the same for corporate borrowing. If corporates don’t need the money, they shouldn’t raise it too substantially unless they think we’re heading for a catastrophic situation.”

The fact that utilities haven’t rushed to the market is a positive sign, said Felix Orsini, co-global head of debt capital markets corporates origination at Societe Generale.

Since the collapse of Lehman Brothers Holdings Inc. in 2008, “corporates tend to raise more money when they’re worried because they aren’t sure when they will be able to enter the market,” he said. “For utilities, the market tends to reopen faster and that helps them to be more serene. To not come to the market is more a sign of optimism than worry.”

--With assistance from Tara Patel in Paris and John Glover in London. Editors: Vidya Root, Andrew Rummer

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net


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