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Tuesday, November 30, 2010

Capital Markets European company borrowing costs rise

Capital Markets European company borrowing costs rise ; European bank and corporate borrowing costs have risen as the eurozone debt crisis spreads beyond the sovereign debt markets. Bankers and traders say troubles in the eurozone could force some institutions to delay bond issues amid fears of contagion, which has this week sparked a rise in borrowing costs for Italy and Spain, two of the currency zone’s biggest economies.

The growing concerns about rising European sovereign bond yields and their impact of corporate borrowers were highlighted by a warning from the Bank of Portugal that its country’s commercial banks face an “unbearable” level of risk to refinance their debt if Portugal fails to implement credible measures to consolidate its public finances. In a report published on Tuesday, the central bank said the country’s sovereign debt difficulties had forced banks into “permanent and large-scale” dependence on European Central Bank funding that was “not sustainable”.

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According to the central bank report, Portuguese banks face “no intrinsic profitability or solvency problems” and have shown “a notable capacity to resist and adapt”.

In the corporate sector, the cost of borrowing for Lottomatica, the Italian lottery operator, jumped this week, while other companies and banks have seen yield spreads over German bunds, the benchmark for European securities, widen.

Lottomatica‘s cost of borrowing on its most recently priced bond jumped to 5.61 per cent from 5.49 per cent when it was issued last Thursday.

The yield spread over bunds has risen to 345 basis points from 311 basis points at the launch of the bond, which matures in February 2018. One bank trader said: “Investors are increasingly risk averse, aware that the eurozone crisis is now hitting corporate and bank funding costs.”

The fact a company such as Lottomatica, which has strong revenue streams, is being affected suggests the crisis could deepen, traders warn. BNP Paribas, the French bank, and France Telecom have had spreads over bunds widen in recent days, too. For the latest updates PRESS CTR + D or visit Stock Market news Today

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