Brexit Keeps Europe’s Top Utility Away From Sterling Bond Market

Europe’s biggest power company by market value is steering clear of pound-denominated bonds because of the uncertainty caused by the U.K.’s decision to exit the European Union.

Even as the Bank of England’s post-Brexit policies have supported U.K. corporate bonds, which are on track for their best year since the financial crisis, Italy’s Enel SpA isn’t convinced that policy shock waves have passed. It’s leaning toward green bonds in other currencies or Swiss franc-denominated securities to pre-finance debt due next year, a top executive said.

Enel doesn’t expect to issue “in the sterling denominated debt market until Brexit uncertainties fade given increased volatility,” the company’s head of finance Alessandro Canta said in an interview in Rome.

Enel, which on Thursday bought one of the world’s biggest developers of software for power utilities, has about 12.4 billion euros ($13.9 billion) of debt maturing between 2017 and 2019, of which 6 billion euros is already pre-financed, according to the company. It last issued sterling bonds in 2014 and has more than 4 billion in pound-denominated ($7.6 billion) debt due from 2019 onwards, according to data compiled by Bloomberg.

Brexit induced volatility, as well as the relatively small size of the U.K. market would see the Rome-based company exploring further financing needs in more niche markets like Switzerland, which according to Canta is “small, but very receptive” and gives a very good diversification opportunity.

Enel may be the exception in its aversion to U.K. debt markets. Sterling corporate-bond issuance has more than doubled to about 20 billion pounds of bonds this year compared with the same period last year, according to data compiled by Bloomberg.

Average borrowing costs dropped to the lowest in nine months in June at 2.17 percent, compared with 4.92 percent five years ago, Bloomberg Barclays index data show.

AT&T Inc. sold 1 billion pounds of bonds due in 2037 this month to help fund the U.S. phone company’s $85.4 billion takeover of Time Warner Inc. Anheuser-Busch InBev NV, the world’s biggest brewer, sold 2.25 billion pounds of bonds in a three-part deal last month in the biggest corporate pound issuance this year.

“If you’re a big multinational corporate with a lot of borrowing to do, there’s no reason why you wouldn’t consider the sterling market,” said Paola Binns, a portfolio manager at Royal London Asset Management in London, which oversees about $120 billion. “Deals are getting oversubscribed and they’re pricing at very attractive costs for the issuer.”

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