By Serena Ruffoni and Art Patnaude
Banco Espirito Santo SA (BES.LB) Wednesday was attempting to
become the first Portuguese bank to sell new debt that isn't backed
by the government since 2010, as improved sentiment across the euro
zone over the last two months has brought its borrowing costs down
substantially.
BES, the only lender in the country that hasn't taken direct
government aid, planned to sell at least 500 million euros ($646.8
million) worth of three-year, senior-unsecured bonds, a banker
working on the sale said.
The deal marks the emergence of a Portuguese bank into public
debt markets after a more than two-year hiatus. Investors became
wary of banks and companies in Portugal at the start of the
euro-zone sovereign-debt crisis. Portugal requested an
international bailout in April 2011.
Banco Comercial Portugues SA (BCP.LB) was the last Portuguese
bank to sell senior unsecured bonds, a type of debt backed solely
by a bank's credit worthiness, in March 2010.
"It's a big positive for Portuguese banks trying to break
themselves away from European Central Bank funding," said Jean-Luc
Lepreux, senior bank analyst at Societe Generale.
Borrowing costs across the euro zone have collapsed over the
last two months. A pledge from the ECB to buy sovereign bonds from
countries that request aid kicked off the rally in early September.
The removal of worries about Spain getting downgraded to junk
status gave a further lift in October, when Moody's Investors
Service kept the country's debt rating at investment grade.
Looking at the BES's credit default swaps, which gauge investors
opinion on the likelihood of a bank defaulting on its debt, the
shift since summer has been significant. The five-year CDS of BES
were at 466 basis points Wednesday, less than half the level in
early June, according to Markit data.
BES initially proposed a yield of 6.25% for its new bonds, with
the pricing to be firmed up during the day. The Portuguese two-year
government bond is yielding 4.6%, according to Tradeweb, while the
five-year is yielding 6.1%.
"If any Portuguese bank was able to propose a bond deal to the
market, it's Banco Espirito Santo," said Mr. Lepreux at Societe
Generale, reiterating the bank was able to raise equity in the
market from private investors without government intervention.
The recent improvement in tone has also encouraged Portuguese
companies to tap international bond investors. Portugal Telecom
SGPS SA (PT) sold EUR750 million worth of 5.5-year bonds earlier
this month, while highway systems operator Brisa Concessao
Rodoviaria SA (BRI.LB) and Energy company Energias de Portugal SA
(EDP.LB) sold debt in September.
JPMorgan, Morgan Stanley, UBS and Banco Espirito Santo are lead
managers on the BES bond. BES is rated in junk territory, with a
Ba3 from Moody's Investors Service Inc. and BB- from Standard &
Poor's.
Write to Art Patnaude at art.patnaude@dowjones.com