First class delivery for La Poste bond despite status doubt
La Poste issued its first capital markets transaction this week after an absence of two years, achieving attractive funding on the Eu1.8bn two tranche bond, despite discussions in Brussels on the company's future status as a state supported entity.
The deal was massively oversubscribed, the Eu800m seven year tranche receiving orders of Eu1.6bn, and the Eu1.bn 15 year tranche oversubscribed to the tune of Eu2.7bn, reflecting the revival in demand for long dated securities.
Both segments were priced at the tight end of guidance by joint leads Bardays Capital, Deutsche Bank, Ixis, JP Morgan and Natexis Banques Populaires.
Proceeds of this transaction will be used to make an exceptional contribution of Eu2bn to a reformed pension system of the company's civil servant employees.
La Poste, which is 100% owned by the French state, enjoys the status of an Etablissement Public Administratif. However, the European Commission has recommended that the French state withdraw its guarantee on La Poste's debt. The company will also be forced to relinquish its monopoly on postal services in France when the industry is liberalised in 2009.
Fitch, which rates La Poste AAA, put the credit on negative outlook after the EC recommendations while Standard & Poor's retained a stable outlook on its AA- ratings.
In S&P's opinion, the French state will remain La Poste's majority shareholder over the medium to long term.
"The rating is linked to that of the government, as it reflects the status of La Poste as a public company," said Nicolas Riviere, primary analyst at Standard & Poor's in Paris. "But the rating also reflects the deterioration of La Poste's financial profile following the payment to the state of a Eu2bn one-off contribution this year, and its increasing autonomy from the state resulting from the structural changes underway, which will strengthen its business and financial profile."
Nicholas Duhamel, La Poste's CFO, told EuroWeek that there were lots of questions about possible changes in the company's status on the roadshow and during the investor conference conducted ahead of the transaction.
"But we are not inconsistent with any EU Commission rules, as we receive no financial assistance from the government," he said.
Many market participants are convinced the company will be privatised at least during the life-time of the 15 year tranche. One head of frequent borrower syndicate expected such a move in the near future.
"It is our view that within the next 15 years, La Poste will definitely lose its one triple-A rating as it goes into private hands–they are already rated as a corporate by Standard & Poor's–and in our view they will probably become a high single-A," he said. "That makes the pricing of plus 12bp on the 15 year tranche an absolutely fantastic trade for them.
But the prospect of privatisation was denied by the company, which believes La Poste will retain its status as an entity stabilised by the French state.
And indeed S&P expects the company to retain strong state support but possibly in a different framework.
"We already factor in our ratings the long term likelihood of a capital structure change for La Poste or its subsidiary La Banque Postale, which would require a change in current status at some stage and therefore the loss of the state's guarantee that the European Commission recently recommended," said Riviere. "However, if La Poste is to become a limited liability company, this would not necessarily trigger a rating change, and we would not necessarily interpret such a move as indicating a change in state support."
Investors ignore implications
But any implications of the company being privatised, downgraded or losing its monopoly were simply ignored by investors.
Books were opened on Monday morning with price guidance on the seven year tranche of mid-swaps plus 5bp area and plus 13bp on the 15 year. The immediately positive response–the deal was fully subscribed within two hours–enabled spread revision to plus 4bp and plus 12bp respectively. The 15 year was also increased from Eu800m to Eu1.bn.
A spokesman for the leads said the pricing was in between double-A French corporate issuers and the triple-A agencies." On the pure corporate side, RTE issued a 10 year a couple of months ago at mid-swaps plus 20bp but now trades at plus 10bp," he said. "It is also rated AA- by S&E Names like SNCF, which are triple-A, trade through Libor."
Unsurprisingly, the bulk of demand came from French investors, which bought 54% of the seven year tranche and 45% of the 15 year. Asset managers were the biggest buyers, taking 43% and 45% respectively. Insurance companies and pension funds took 24% of the seven year and 23% of the 15 year.
The deal performed well in the aftermarket, the seven year tranche tightened by 1.5bp against Bunds and the 15 year by 2.5bp against Oats
