Seb : Issuance focus Publication date 19/05/2017 09:54 Writing date 19/05/2017 09:53

Groupe SEB S.A. is preparing to issue a new € 500m unrated bond with a seven-year maturity (2024). In our opinion, it will serve to refinance a large portion of the commercial paper programme, to capitalise on low long-term interest rates and, most important, to avail itself of a little more liquidity headroom (by again accessing the RFC which can be used as a back-up to the CP programme).Operationally, Groupe Seb is still a medium-sized company relative to big names in the sector, but it holds leading positions in most of its markets and boasts a broad geographical spread. The group has eased the pressure on its margins through its capacity for innovation and belt-tightening efforts. Our credit opinion on the issuer is Stable based on a 'BBB' in-house rating. In April 2016 we switched to a Neutral recommendation on the SKFP 2022 bonds to reflect the likelihood of a large-scale acquisition (initial rumours about WMF were rife) that would have led to a downgrade of our 'BBB+' in-house rating to 'BBB'. The announcement of the WMF deal, raising the net debt/EBITDA ratio to the 3x limit (vs. 0.6x at end-2015), but with a clear objective to bring it back below 2x as quickly as possible, tallied with our expectations and underpinned our opinion that Seb should position itself in a 'BBB' credit profile on a long-term basis.For the new seven-year bond, based on our sample of comparable bonds, the average spread for a 'BBB' rated issuer would be about 60/65bp for a seven-year maturity. Logically, given the premium inherent to an unrated issuer (at least 50bp), the spread of the forthcoming SKFP 2024 issue is expected to be at least 110/115bp, excluding issuance premium. We recommend subscribing to the issue above this level, which is our “fair” spread target.Likewise, given that the acquisition risk is no longer on the agenda, but, on the contrary, management is focused on integrating WMF and reducing its leverage this year, we take this opportunity to reposition on a Buy recommendation on the SKFP 2022 paper which is currently trading at around 80bp. This level of spread seems to be fairly valued relative to similar bonds and our in-house rating. But it offers an opportunity to take positions in the credit for investors looking to move into shorter-dated maturities than that offered by the new issue.>