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Bonds News

US companies export debt sales amid overseas growth

NEW YORK, May 10 (Reuters) - Overseas expansion by corporate America is fueling a multibillion-dollar rush of debt issuance by U.S. companies in foreign markets, cheering European investors otherwise starved for bond supply.

U.S. companies have issued an equivalent of $96 billion in bonds in euros, sterling and other major non-dollar currencies year to date, up from $55 billion last year, according to financial data provider Dealogic.

“We’ve seen a number of U.S. companies tap the European market because they’re making acquisitions here and they want to get some euro funding -- and they can,” said Joe Biernat, director of research for European Credit Management in London. “The European market is big and deep, and there are plenty of investors here who are happy to lend.”

Euros are the top foreign currency used by U.S. debt issuers, with about $67 billion equivalent in debt sales year to date, followed by $12 billion in British pounds and $5 billion in Australian dollars, according to Dealogic.

Companies expanding overseas can issue in foreign currencies without being hurt by a sinking dollar. Because their revenues are in non-dollar currencies, no currency exchange is involved in servicing debt.

“Companies are increasingly going overseas to secure financial capital and in doing so they’re relying on non-U.S. currencies, especially when they can match new debt liabilities with foreign currency cash flows,” said John Lonski, chief economist for Moody’s Investors Service.

OVERSEAS INVESTMENT AT RECORD

U.S. investment abroad hit a record $248.9 billion last year, topping the previous high of $244.1 billion in 2004, Lonski said, citing U.S. Bureau of Economic Analysis data.

General Electric Co. GE.N, which is getting half of its revenues from foreign markets, raised about $37 billion in non-dollar currencies last year, or about 44 percent of its $84 billion total, according to information provided by the company.

“Their businesses are growing faster internationally so they’re funding more internationally,” said David Hendler, analyst for fixed-income research service CreditSights.

Bank of America BAC.N, Procter & Gamble PG.N, Wal-Mart Stores WMT.N and American International Group AIG.N have also sold large debt issues in foreign currencies in recent months.

“A big trend we’ve seen at Deutsche is a number of financial institutions looking to diversify their funding into the non-U.S. markets,” said Erich Mauff, co-head of North American debt capital markets for Deutsche Bank. “The international market offers very good value with big liquid pools of money.”

Bank of America has issued about $21.6 billion in debt in non-dollar currencies since the start of 2006, according to Dealogic.

“We do enjoy very attractive access to international markets and have deliberately worked to diversify our funding sources,” said Bank of America spokeswoman Eloise Hale.

Low borrowing costs and growth potential in Europe are helping fuel expansion by U.S. companies overseas.

EUROPEAN GROWTH TO OUTPACE U.S.

The European Commission is projecting a growth rate of 2.9 percent in the European Union in 2007, versus economists’ median forecast for 2.4 percent U.S. growth this year.

Benchmark interest rates in Europe stand at 3.75 percent, versus 5.25 percent in the United States.

Meanwhile, new bond supply from European companies has been relatively light this year, and bond redemptions are putting cash into investors’ pockets, boosting demand.

“Demand tends to outstrip supply in the best of the times and the fact that we’ve had relatively low issuance here in euros means that we’ve got pretty heavy demand,” said Ben Bennett, European credit strategist for Lehman Brothers in London.

Moreover, diversification is a priority with investors now, so there is good appetite for new names, he said.

Issuance by U.S. companies in Canadian dollars is also rising rapidly, to $4.2 billion year to date from $1.4 billion a year earlier, according to Dealogic.

The Canadian market opened up when a regulation limiting pension funds’ offshore investments was abolished in 2005, according to Larry Bates, global head of debt capital markets at RBC Capital Markets.

“The abolishment of that regulation created an instant market for American and European borrowers to issue in Canadian dollar bonds,” he said.

Additional reporting by Richard Barley in London

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