Two European companies — French drug maker Sanofi and German household products maker Henkel — last week became the first firms to persuade investors to pay them to borrow euros. By selling bonds yielding minus 0.05 of a percentage point, they may well have signaled the bond market’s peak, delivering this decade’s equivalent of the “Ukrainian Chicken Farm Moment.”
That phrase refers to the 2006 sale of $250 million of bonds by Myronivsky Hliboproduct which, according to its description on the Bloomberg terminal, is “a vertically integrated producer of poultry products in Ukraine.” Few investors had ever heard of the Ukrainian chicken breeder, but with an interest rate north of 10 percent, buyers were clamoring for the MHP bonds. Bill Blain, currently at Mint Partners in London, was one of the bankers who brought the deal to market. He recalls the bidding frenzy:
“It was massively oversubscribed. A few weeks later, bird flu broke out in Hong Kong. The chicken farm was uninsured. The market immediately discounted the notes and the price crashed 30 percent or more. That moment of supreme belief when anything is possible in the new issues market will always be remembered as “The Ukrainian Chicken Farm Moment.“”
An investor who buys some of Sanofi’s 1 billion ($1.12 billion) of bonds and holds them until they’re repaid in three years is guaranteed to lose money.
This post was published at bloomberg
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