Companies led by Electricite de France SA, the world’s biggest utility, Siemens AG, Europe’s largest engineering company, and Vivendi SA, France’s biggest media company, raised 258 billion euros ($324 billion) in the first two months of 2009, more than double the 110.4 billion euros in the year- earlier period. Executives say they are raising more than they need rather than compete with European governments selling an unprecedented amount of debt this year -- more than $800 billion -- to pay for their economic stimulus packages.

“The conditions were ideal at the start of the year, and my analysis was that longer-dated bonds would go up later in the year as governments pile in to borrow,” Daniel Camus, chief financial officer of EDF, said in an interview. “I covered the essentials for the year.” The company sold 7.9 billion euros in bonds in January.

Companies are selling bonds at a time when premiums have risen to the highest on record amid a worldwide credit crunch because of $1.2 trillion in writedowns and credit losses at financial companies after the U.S. subprime mortgage market collapsed in 2007. They are reducing their reliance on banks, many of which, from Citigroup Inc. to Royal Bank of Scotland Group Plc of Edinburgh, sought government bailouts.

‘Rebalance Debt’

“We wanted to rebalance our debt away from bank loans,” Philippe Capron, CFO of Vivendi, which in January sold 1.4 billion euros of 7.75 percent bonds, said in an interview. “Who knows what shape the banks are going to be in, what their policy on loans is going to be. We didn’t want to be totally at the mercy of the banks.”

Vivendi’s banks include RBS and Brussels-based Fortis, both of which are now state-controlled after getting government aid.

European companies accounted for more than half of global corporate bond sales in the first two months. Although premiums relative to comparable government debt remain at record highs, cuts in interest rates by central banks to revive the world economy have kept overall borrowing costs low. The European Central Bank last week slashed its benchmark interest rate to a record 1.5 percent and signaled other cuts may be in store.

“It’s the right time to issue bonds,” said Munich-based Siemens’s CFO Joe Kaeser. “I assume that we’re going to be flooded with government bonds in the next few months.”

Just last week, euro-region governments sold 18.4 billion euros of bonds, more than three times the weekly average of the past three years of 5.8 billion euros.

‘Like Insurance’

European governments committed 1.2 trillion euros in bank aid and about 200 billion euros in economic-stimulus plans. The U.S. package rises to $9.7 trillion once all measures to address the financial crisis are thrown in, Bloomberg estimates show.

The subprime crisis and the resultant collapse in housing, coupled with the steep drop in equity prices worldwide, wiped out more than $40 trillion of wealth, equivalent to two-thirds of last year’s global gross domestic product, former Federal Reserve Chairman Alan Greenspan said last month.

It also curbed companies’ access to the debt market. Vivendi was unable to sell bonds in September, Capron said.

“The market was totally closed,” he said. “It wasn’t a question of rates being too high, there just wasn’t a market.”

When it sold bonds in January, Vivendi paid 500 basis points more than it would have on a bank loan, Capron said.

“The higher interest rate will cost us 50 million euros this year, but it’s like an insurance for us,” he said.

Investor Demand

Paris-based EDF sold bonds to replace bank loans for the 12.5 billion-pound ($18 billion) purchase of British Energy, even though there was no need to roll over any of the debt for two years, Camus said. The average interest rate on the bank loans was 7 percent. He replaced it with euros borrowed at 5.1 percent and dollars at 6.9 percent, over six years.

Siemens’s Kaeser raised 4 billion euros last month, more than the 2 billion euros of bonds he’d intended to sell, as demand drove down the rates he had to pay.

Siemens’s four-year bonds were priced to yield 158 basis points more than the benchmark swap rate, down from initial price guidance of 170 basis points. The spread on the eight-year bonds was cut 10 basis points to 200.

Extra Yield

Financial markets show investors continue to shun riskier assets. The MSCI World Index of stocks has plummeted more than 50 percent in the past year. Although the three-month euro Libor-OIS spread, a gauge of bank reluctance to lend, has narrowed to 48 basis points, the average over the last five years was 34 basis points.

The extra yield investors demand to hold high-grade company bonds rather than government debt hit a high of 442 basis points on March 5, according to Merrill Lynch & Co.’s Investment-Grade Corporate Bond Index. It was on average at 47 basis points in the first half of 2007.

“The corporates need funding and investors want their bonds,” said Suki Mann, a credit strategist at Societe Generale SA in London. “Government yields are too low and equities are too volatile, so everyone is looking at the corporate bond market. Each month is a record, and utilities and telecoms will continue to drive the market.”

On March 2, TeliaSonera AB, Sweden’s largest telephone company, sold 550 million euros of five-year bonds. Madrid-based Telefonica SA, Europe’s second-biggest phone company, is considering selling 500 million euros of bonds in pounds, Cinco Dias reported March 4.

A Cushion

Schneider Electric SA, the world’s biggest maker of circuit breakers, sold 750 million euros in four-year bonds in January although it didn’t need all that money, says CFO Pierre Bouchut.

“This way I have ample liquidity and I don’t have to be nervous for the coming year,” he says. “For the next three years I have cash or unused credit lines totaling 3 billion euros. We can absorb any shock. I was concerned there might be tight liquidity in the market later in the year.”

Schneider’s 6.75 percent bonds were priced at 435 basis points more than similar-maturity German government debt. After hitting a six-year high at 4.68 percent last June, German 10- year government bonds fell to 2.97 percent, near a record low.

Patrice Durand, CFO of Thales SA, Europe’s largest defense- electronics company, told a similar story.

“We didn’t totally need the money but we saw it as insurance,” he said. “In these sorts of times, you want a cushion so that later you aren’t forced to borrow at much worse rates.” Thales sold 275 million euros in bonds at 333 basis points more than German government bonds.

Roche Holding AG, Switzerland’s biggest drugmaker, issued the largest euro-denominated fixed-rate bond deal ever last month, to help fund its hostile bid for Genentech Inc.

 SOURCE: Bloomberg