Brighter Mood Spurs BASF, Schering-Plough Bond Plans


German chemical company BASF plans to sell a 7-year euro benchmark bond, one of the banks managing the sale said on Wednesday, as the outlook for credit markets brightened.

Also lining up to tap the market is U.S. drugmaker Schering-Plough which plans to sell a euro benchmark bond, banks managing the sale said.

A bigger-than-expected 50-basis-point cut in interest rates from the U.S. Federal Reserve late on Tuesday gave corporate credit markets a significant boost on Wednesday. That is likely to spur a long-awaited supply of highly rated corporate issuance.

"At the margin, it is definitely going to improve the whole feeling for new issuance and should lead to more," said Ben Bennett, a credit strategist at Lehman Brothers.

Until very recently, the primary market had all but dried up as the financial crisis, sparked by problems in the U.S. subprime market, escalated and the cost of borrowing shot higher.

The BASF deal, through its financing arm BASF Finance Europe, is set to be the second European non-financial sale to come to the market in September. Last week investment-grade Anglo-Swedish drugmaker AstraZeneca saw strong demand for a 750 million euro bond.

"Now spreads have tightened in, so we should see a few more investors willing to part from some cash," said Bennett. "That was the problem before. European investors were unwilling to give up cash because they wanted to hold it in case they got fund redemptions."

He said that dealers too should be more comfortable with mopping up sales of existing bonds by investors keen to buy new issues. Banks' trading desks have been nervous about buying bonds as they hoard cash, reducing liquidity in the secondary market.

"Risk appetite in general just feels a little bit better now," Bennett said.

Joint bookrunners for the BASF deal, run off the BASF debt issuance programme, are Barclays Capital and Deutsche Bank. Price guidance is expected to follow an investors' conference call due later on Wednesday, the bank said. The bond will mature on Sept. 26, 2014.

BASF is rated AA- by Standard & Poor's and Fitch Ratings and Aa3 by Moody's Investors Service.

BNP Paribas, Credit Suisse, Goldman Sachs and JP Morgan are joint bookrunners for the Schering-Plough deal which is set for launch, subject to market conditions, after a roadshow that runs into early next week.