* IG corporate bond supply could hit EUR175bn in 2013
* Top corporates delay financing to limit cost of carry
* US M&A re-emergence could inspire European comeback
* Consolidation potential seen in telecom sector
By Josie Cox
LONDON, Oct 4 (IFR) - High-grade corporate bond issuanceover the first three quarters of 2013 has already eclipsed thefull-year annual average of the last decade and will likelycontinue to soar, spurred by low interest rates, M&A greenshoots and a record maturity wall in 2014.
So far this year, EUR149bn worth of bonds have been issuedby investment-grade corporates, according to Thomson Reuters'data, and bankers are saying a "normalisation" of markets couldencourage up to EUR25bn-EUR30bn more in the coming quarter.
That would drive full-year issuance to EUR175bn, which -despite being EUR33bn off last year's total - is still 17% up onthe annual EUR148.65bn average of the past 10 years.
"There is a whole range of deals in the pipeline," saidPhilippe Bradshaw, head of Europe corporate syndicate at RBS."Liability management and complex trades, like hybrids, arestill on the cards, but also so-called 'surpriseknock-on-the-door trades' - opportunistic transactions."
Others agree that reduced volatility - not least due to theFed's taper delay - is creating a conducive backdrop for newissues.
"As a greater sense of stability ensues, we're likely tomove away from a window-driven market, where financingopportunities come and go very quickly, to more of a steady paceof supply," said Giles Hutson, managing director of EMEA debtcapital markets at Bank of America Merrill Lynch.
HITTING THE WALL
Even though scores of corporates have prefinanced inanticipation of maturity walls and a rate rise - reflected inthe fact that current volumes are down just EUR10bn on lastyear's like-for-like level - there are some that still need toprint.
Higher rated, lower beta borrowers, for example, tend toenjoy more unrestricted access to the primary market, so havebeen in no rush to finance redemptions due in the second half of2014.
"Many are eager to avoid the cost of carrying additionalcash on their balance sheets so only print when they have to,"said Bradshaw.
Approximately EUR140bn of investment-grade corporate bonds -many issued in 2009 at much more expensive interest costs thancurrently available - are due to mature next year, according toThomson Reuters data.
That represents a redemption increase of 11% on 2013 levelsand almost 50% on 2012 volumes.
M&A RE-EMERGENCE
Debt market financing is also slowly re-emerging as a toolfor funding expansion, bolt-ons or even larger acquisitions.
"We've done a lot of acquisition financing pitches over thepast years and now it feels like there is increasing substanceto a number of these dialogues," said Hutson.
Other bankers have pointed to the US as a precedent for thepotential reignition of the European M&A market.
Thanks in part to a pick-up in acquisition financing,September was the biggest new issuance month ever on record onthat side of the Atlantic, with USD143.9bn worth of bondspricing in the investment-grade space.
Many corporates are also issuing bonds to fund sharebuy-backs - a trend that some bankers say could also spread toEurope late this year and early next.
In September - via perhaps one of the most high-profile debtacquisition cases in recent years - Verizon issued USD49bn ofbonds to partially refinance its acquisition of Verizon Wirelessfrom peer Vodafone.
Jean-Marc Mercier, head of European syndicate at HSBC, saidthat this sent a clear sign to the market that transactions likeRoche's USD30bn-equivalent bond offering to finance itsGenentech acquisition in 2009 are no longer a thing of the past.
"I think it will still be some time before we see a properreturn of confidence in M&A markets and a proper pick-up involumes in Europe, but we seem to be moving in the rightdirection."
Nancy Utterback, senior credit analyst at Aviva Investors, said M&A was particularly likely in the telecom sector.
"There is still consolidation potential in the light ofattractive valuations now that share prices have fallen so muchin recent years," she said.
On Wednesday, Portugal Telecom said it was merging withBrazil's Grupo Oi to form a new company with USD19bn in annualrevenue, just hours before shareholders in Dutch telecoms groupKPN approved the EUR8.55bn sale of its German unit E-Plus toSpanish rival Telefonica.
Negotiations are still ongoing about a potential KPN tie-upwith America Movil. (Reporting By Josie Cox; Editing by Philip Wright, AlexChambers and Helene Durand)
Vodafone (VOD)
