Total bond price sends investors into overdrive

 
Caitlin Morrison
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FRENCH oil firm Total lit up the market yesterday after issuing a €5bn (£3.7bn) hybrid bond.

The company stoked market interest last week with its plans to put the deal for securities, combining the characteristics of equity and debt, on the market. Although investors were expecting it to be valued at €3bn, they were apparently won over by the attractive pricing Total has offered.

The securities have been split into two sets – €2.5bn worth of perpetual non-call notes that Total can buy back in six years (NC6), and €2.5bn notes of the same nature that can be bought back in 10 years (NC10).

The NC6 notes will yield 2.25 per cent and NC10 will yield 2.625 per cent, with the longer-term deals attracting the majority of the orders.

The bond has reportedly attracted €20bn worth of orders, and market commentators said the interest in the deal was partly due to strong demand for this type of asset, as well as Total’s relatively high ratings.

The company declined to comment on market reaction last night.

Ahead of the bonds going on the market, Standard & Poor’s (S&P) assigned its “A” long-term issue rating to both NC6 and NC10. The ratings agency also stated that, while the completion and size of the issue will be subject to market conditions, it anticipated a multi-billion issuance.

S&P added: “These hybrids will help mitigate the further deterioration in our adjusted debt metrics in 2015 and subsequently as a result of forecast lower oil price realisations and likely negative cash flow after investment and dividends.”

S&P also noted that although the proposed securities are undated, or perpetual, Total can redeem them as of the first call dates, 2021 and 2025 for NC6 and NC10 respectively, and on every interest payment thereafter. It added that if Total did take this course of action, the company intended to replace the instruments, although it was not obliged to do so.

Shares in Total fell by 2.92 per cent yesterday.