Tuesday, March 14, 2017

EDF: EDF has announced a EUR 4 bn share capital increase which was previously ind

EDF: EDF has announced a EUR 4 bn share capital increase which was previously indicated and the company expects to complete the exercise by the end of March. This would ease the impact of elevated capex moving forward, keeping adjusted net leverage below 4x after including Hinkley Point C costs, which would be safe from a ratings standpoint. Meanwhile, EDF‘s hybrids still trade at non-investment grade spreads and we prefer the GBP-denominated EDF 6% Perp NC 2026 as it could have an upside of about 7 pts when compared to SSE’s hybrid bonds.

Aviva: FY2016 Solvency II ratio came in at 189% above market consensus and at the top end of management's target Solvency II range of 150-180%. In our view, this means that there is a considerable amount of buffer to: 1) absorb market shocks; 2) deploy capital to grow faster; and 3) potential return of surplus. The upcoming Fed rate hike would strengthen Aviva’s solvency II ratio further, a 25bps and 100bps increase in interest rate will add 4% and 18% respectively to its solvency II ratio. We like Aviva GBP bonds due to ~160bps spread differential between its USD bonds. Our top GBP pick is AVLN 5.125% 2050 NC 2030 (GBP) with YTC and YTM of 4.77% and 4.68% respectively. In the USD space, we prefer AVLN 7.875% Perp (USD) NC 2018.

PTT: PTT, Thailand’s national oil and gas company, announced up to US$450bil repurchase offer on selective USD senior unsecured bonds. It has set a tender spread of 151bps for US$350mil PTTTB 5.875% 2035 and a minimum spread of 161bps and base spread of 175bp for US$100mil PTTTB 4.5% 2042 against the reference UST 2.875% 2046. Assuming full redemption, the leverage ratio is expected to improve to 32% from 31% while EBITDA/interest expense ratio will improve to 9.4x from 9.2x. We believe the tender spread is fair relative to 18Y and 25Y USD BBB+ Energy which are trading at 148bps and 164bps against the reference UST 2046. PTTTB 5.875% 2035 and PTTTB 4.5% 2042 are currently trading at 151bps and 156bps around the tender spread, hence there is no room for arbitrage.

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