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GDF Suez is using its EUR 1.7bn hybrid capital issue this week in an unusual way -- to finance the repurchase of other bonds, most of them senior debt.
One class of securities GDF is buying back -- EUR 429m of titres participatifs issued in the mid-1980s -- are perpetual, subordinated securities, but because the coupons are not deferrable, under modern accounting and rating agency rules they do not count as equity. The tender offer to retrieve those bonds began on June 20 and runs until July 10.
The first part of the buyback, of Pounds 170m of sterling bonds, was already completed in the first half of June (see below). In the third part, announced with the hybrid issue on Wednesday, GDF is hoping to buy back up to EUR 1.3bn of seven euro bonds, with maturities from April 2015 to January 2020.
For a company with a large balance sheet, plenty of cash and positive free cashflow like GDF Suez, the issuance of debt need not be tied closely with a buyback that it finances.
But GDF, which had not been tempted to issue hybrids when they cost 5.5% to 6%, was attracted by the low cost of capital it could achieve, since both interest rates and spreads on corporate hybrids have come down this year.
One UK investor who had engaged in a call with GDF Suez on Monday said: "The company has quite an aggressive dividend policy, but is committed to keeping its ratings at the single-A level. Standard & Poor's took it off negative watch but it is on negative outlook, and if...