2 days ago –
29 April 2023, 08:37
The first has arrived “Yankee bond” of Cassa Depositi e Prestiti (CDP). This Friday’s issue saw the participation of over 120 institutional investors, 76% of which were foreign. Of course, it was aimed mostly at the US market, as it was a bond denominated in US dollars.
And 45% of the total investors came from here. In all, the amount offered was 1 billion and the demand attracted stood at 3.8 billion. The operation ended, therefore, with good success. BNP Paribas, Bank of America, Citi, Goldman Sachs, HSBC, IMI-Intesa Sanpaolo, JP Morgan have dealt with it as Joint Bookrunners.
The CDP bond has a three-year maturity and pays a gross annual coupon of 5.75%. It was the first to be denominated in dollars for the Treasury-controlled entity. The objective is clear, namely the diversification of sources of capital procurement and the opening up to the rich American market.
I rating expected are BBB for S&P and Fitch.
CDP bond in dollars poses currency risk
But the truth is that today borrowing in dollars can be a winning bet for a European investor. The exchange euro Dollar it has already recovered by 15% from the lows reached last September. It should continue to appreciate over the next few years as the European Central Bank (ECB) raises interest rates, ending the past decade’s high monetary divergence with the Federal Reserve. However, this prospect poses a risk to the bondholder. If the dollar goes down against the euro, you will receive a depreciated principal at maturity.
And it is also for this reason that the fixed coupon was high.
5.75% for a 3-year bond is a lot even under current market conditions in Italy.
It is equivalent to a award in the order of 200 basis points or 2% compared to the T-bond of the same duration in the United States. On the other hand, the BTp in dollars at 3 years in the same hours it offered a yield in the area of 5%. This means that the CDP bond has also hesitated at a premium against Italian public debt securities and to be exact of about 75 basis points or 0.75%.
It must be said that this premium should appeal to those who already intended to jump into the dollar bond market. Indeed, the credit risk of CDP bonds is substantially the same as that of BTPs. CDP is an entity in the hands of the Treasury, so the state would never, ever let it go into default. So much so that the bondholder discounts the same on the interest accrued on its bonds facilitated taxation envisaged for government bonds at 12.50%.