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BNPP and French ECM: a tough year gets a bit better

The latest French government sale of shares in engine-maker Safran could not have come at a better time for BNP Paribas, which has got some serious work to do if it wants to get close to the top of the French equity capital markets rankings this year.

Until Monday night’s €1.24 billion deal – the biggest equity trade in France so far this year – the bank was languishing in a lowly seventh place for straight equity transactions in France, according to Dealogic, with less than $150 million of league table credit from nine transactions.

The Safran trade, where BNP Paribas was sole global coordinator but shared bookrunner duties with Morgan Stanley and Société Générale, bumps BNPP up to fifth place, but also sees its French rival overtake Goldman Sachs to go top. SocGen was also advising the state on the trade in the run-up to launch.

SocGen and BNPP have been number one and two, respectively, in each of the last three years. If equity-linked is included, then BNPP topped the table in 2015 and 2016.

BNPP’s position so far this year certainly hasn’t been helped by the broader context. Even by the standards of a poor year for European ECM, French dealflow has been spectacularly lumpy in 2018. Just a few clients choosing not to press the button can hit a bank hard.

BNPP might have to hope it can grab a juicy sole mandate if it wants to up its market share meaningfully

Before the Safran deal, French equity volumes this year totalled just $5.7 billion, compared to $22 billion in 2017. Volumes that low, where a deal like Safran can represent a quarter of total activity, clearly make rankings less meaningful.

But they will still matter to BNPP, which has made no secret of its desire to improve its overall European ECM performance, with EMEA corporate finance head Sophie Javary hiring Andreas Bernstorff to run ECM in the region in early 2017. Making sure the bank remains a leader in its home market is an important foundation for that improvement.

The Safran trade puts down a marker in a couple of ways. It is notable that BNPP has never been on a Safran disposal by the French state – there have been five previous deals, the most recent of which was in late 2016, but the latest is the biggest by some margin.

It was also by far the most tightly priced, at a discount of just 0.6% to Monday’s closing price. The previous low was the 1.82% discount on a March 2015 sale. The French government conducts most of its disposals as competitive auctions, and this was no exception.

BNPP’s presence on such a deal is a statement of intent, but that wafer-thin discount is also a measure of the kind of painfully tight business that banks are pulled into when volumes are so meagre and market share is being chased.

The deal was offered at a range of €119.65 to €120.40, which was the Monday close, and it priced, unsurprisingly, at the lower end. The stock still had not traded above €119 by early afternoon on Tuesday – that’s not a disaster, say bankers away from the deal, but nor does it look like the absolute happiest day at the office for the syndicate teams involved.

The Safran sale is the third state disposal from a portfolio identified by the new administration of president – and ex-investment banker – Emmanuel Macron in mid-2017. The first was a €1.5 billion sale of shares in power company Engie in September 2017, where BNPP was bookrunner alongside JPMorgan and Morgan Stanley, while the second was a €1.2 billion chunk of Renault that was priced with no discount at all via Bank of America Merrill Lynch, Deutsche Bank and Goldman Sachs.

That privatization programme is in the order of €10 billion, so there is about €6 billion still to come down the pipe. If IPO candidates continue to be skittish, BNPP might have to hope it can grab a juicy sole government mandate if it wants to up its market share meaningfully. But given how competitive these deals are right now, it might not earn much for its efforts.

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