Record breaking AB InBev bond to unlock M&A funding

[LONDON] Anheuser-Busch InBev is set to print the biggest ever corporate bond deal in the European market after attracting 28bn of investor demand on Wednesday, a result that is expected to unleash billions of more euro M&A funding.

The transaction arrives just days after the ECB's newly-announced plans to buy corporate bonds, and a frenzy of new issuance which has seen 10.25 billion of corporate bonds raised in Europe in just three days.

While AB Inbev's US dollar seven-tranche bond ended up just shy of the record US$49 billion issue that Verizon sold in 2013, the issuer will not disappoint in the European market, with what is expected to be an at least 11.75 billion deal.

"I think they left a bit on the table in pricing in order to go for size, but it still looks relatively attractive to us. I wouldn't be surprised to see more on the M&A front now - debt funding at 1-2 per cent does wonders for return on equity," an investor said.

The blowout demand enabled the brewing giant to tighten the trade's pricing levels, although investors were still offered enticing premiums on the jumbo six-part deal.

Market players estimated around 30bp of concessions across the deal at initial price talk.

The deal follows the Budweiser and Stella Artois maker's US$46 billion January deal, which was the second-largest bond in history, amassing US$110 billion in demand.

Market players expect more euro-denominated M&A funding to hit the market as early as this week, in a bid to capitalise on the insatiable demand for corporate paper following the ECB's newly-annnounced stimulus measures.

Over US$82 billion of M&A-related bond issuance has been publicly announced from an expected US$200 billion pipeline, and some European bankers say as much as 25 per cent of that could be coming Europe's way.

Other deals, including a US$22 billion financing from Teva, a rumoured US$20 billion bond from Aetna for its acquisition of Cigna Corp, and 19bn-equivalent from Royal Dutch Shell, are waiting in the wings.

The longer dated parts of AB InBev financing attracted strong demand, marking a return of investor appetite for the longer end of the curve.

The 12-year and 20-year tranches received orders of over 6.5 billion and 6 billion respectively, versus over 3.25 billion on the fixed rate four-year bond.

The 20-year is the first euro corporate in that tenor since media firm Relx's 500 million deal in May 2015 according to IFR data.

Volatile market conditions stretching back to the second half of 2015 saw demand for longer-dated deals all but dry up.

BNP Paribas, Deutsche Bank, ING and Santander are global coordinators, together with active bookrunners Intesa, Mizuho and Rabobank.

IFR