European corporate issuance collapses

* IG (LSE: IGG.L - news) issuance hits 16-year low

* Oil and equity woes slow deal flow

* Issuers pay up to access market

By Laura Benitez

LONDON, Jan 19 (IFR) - European investment-grade corporate issuance has suffered the worst start to a year in 16 years as borrowers grapple with elevated premiums sparked by torrid equity markets and oil price volatility.

Only 5.2bn has printed so far this year, the lowest volume since 1999 when 4.1-equivalent priced, according to Thomson Reuters data.

January is typically a busy month for the primary sector as companies make the most of what is traditionally a liquid time in the market to raise funding.

"It (Other OTC: ITGL - news) 's so frustrating. There will be a window of stability and we'll jump on the phone to issuers to prompt them to go but they're still scarred by the 7/8bp widening and bigger premiums they have to pay," one syndicate manager said.

Bankers said that although a number of go/no-go calls have taken place, only four issuers have so far accessed the market.

The lack of activity comes in stark contrast to the same period last year, when 11.5bn-equivalent was issued from a wide range of credits, including US credits.

Volatile moves in Asian equities and in the commodity and auto sectors have spooked the European credit market in recent weeks, in a similar vein to 2015, when company specific headlines and macro concerns halted deal flow for weeks at a time.

Synthetic credit has widened considerably since the start of the year, with the Main out 13bp at 94bp and the Crossover out 45bp at 375bp.

"From an issuer's perspective spreads are at the wide end of recent ranges and they will be less willing to pay these levels, but pricing too tightly won't generate too much interest in this environment. If you come now you will be having to pay a premium on top of wider spreads, so it's a double whammy," said Paul Suter, fixed income trader at ECM.

Telecom Italia (Other OTC: TIAJF - news) was one of the four borrowers seen so far in 2016, but it had to pay the price.

The Ba1/BB+/BBB- rated issuer offered a 25bp concession for its 3.625% January 2024 bond, having paid only 5bp on its last visit to the euro market a year ago.

And despite paying up, bankers said Telecom Italia did not raise as much as it wanted to.

"Telecom Italia were looking for 1bn but had to take 750m because they couldn't get the size," a syndicate banker away from the deal said.

"On just a 2bn book you can't push the size too much if you want to keep investors happy, and they had to swallow their pride and take the price. The truth is that no one wants to buy this market."

That bond has widened 13bp since pricing last week, and is now bid at 318bp over swaps.

ON THE RUNWAY

Potential near-term borrowers that could boost supply include EasyJet (Other OTC: EJTTF - news) and Ausnet Services (SES: AZI.SI - news) , both of which concluded roadshows last week.

Budget airline EasyJet expressed interest at the meetings in either a euro or sterling deal with a seven or eight-year tenor, although leads said it is now waiting for conditions to stabilise to get the 'right price' for its debut bond.

Australian energy company AusNet Services is seeking a sterling or US dollar hybrid, which would be the first test of appetite for subordinated debt since oil company OMV (EUREX: 430021.EX - news) tapped the market last November.

"Many corporates have used the tight spreads on offer over the last few years to refinance and extend their liabilities, The only people that would come to the market now are those that really have to," ECM's Suter said. (Reporting By Laura Benitez, editing by Helene Durand, Julian Baker)