April was one of the quietest months of 2023 for secondary block trades in EMEA but May is shaping up nicely with investors looking for the next Haleon [LON:HLN], the consumer healthcare company that saw a GBP 804m block priced on May 12 by seller GSK [LON:GSK].

Around USD 1.66bn worth of secondary blocks volume in EMEA has been banked this month, as of May 12, already surpassing the USD 1.5bn of volume printed in April, mostly thanks to the Haleon trade.

Haleon was a natural candidate to reopen the market, a large liquid name, well flagged months ahead.

This column reported in January that pharmaceutical giant GSK was likely to start selling down its stock in Haleon this year, as one of several “mega-blocks” due to hit investors’ desks. The market did see a GBP 2bn sell-down in London Stock Exchange Group [LSE:LSEG], a multi-billion euro dual tranche sale of Heineken NV [AMS:HEIA] and Heineken Holding NV and a EUR 2.2bn sale of BNP Paribas [EPA:BNP].

Haleon’s block was covered quickly and oversubscribed, according to a bookrunner note seen by this news service.

At a 2.29% discount the trade did well for the seller. The transaction had a Dealogic Price of Liquidity (PoL) ratio of just -0.88x, far tighter than the average for April, sending a strong signal following the collapse of Credit Suisse in March alongside US regional bank stress.

Haleon’s PoL ratio was the tightest for a large trade since BNP Paribas’ at the beginning of March.

However, the GBP 804m stake size, while still large for a European block, was smaller than expected, according to an ECM banker, adding that this could have contributed to demand. Haleon traded 2.3% higher than the offer price on the first day after the block.

A source close to the situation said that GSK deliberately chose to do a small stake initially, deferring a bigger sell-down to better days, after the 60-day lock-up.

GSK declined to comment on the deal.

Defensive plays or bolder moves?

With markets seemingly benign and some positive noise on interest rates, cooling inflation and little sign of widespread systemic bank risk, investors could be ready to take on risk again in Europe’s equity capital markets.

“There are possible deals across different sectors, across regions and even across continents,” said a second banker, noting there were a slew of lock-ups expiring from trades done earlier this year.

Of the names expiring soon, “LSEG and Heineken would be popular again as they are well-flagged, big and defensive,” said an investor who added that buying trends will depend on the buyside’s macro views.

“People have been very excited about banks earlier this year and that is still interesting but depends on your risk appetite following CS,” he said. Banks remain cheaper than before the collapse of CS, although they have recovered somewhat.

But for long-term investors that still believe in the sector’s advantage in a rising rate environment, an investment in large banks would add up, with BNP top of the list as the lock-up on the Kingdom of Belgium’s remaining 5.1% stake expires on 30 May.

Eyes on Washington

Equity markets have stabilised since March’s bout of bank related volatility. The CBOE’s famed Vix volatility index is trading below 20, normally a sweet spot for ECM deals and Europe’s equivalent VSTOXX is down at around 16, dropping from 32 at the time of CS’s collapse; it is down 17% YTD and almost 40% lower than a year ago.

With inflation seemingly muzzled and central banks forecasting rate stabilisation, the window seems open for some significant ECM activity. But the new normal means that macro risks are still lurking.

While most of Europe is transfixed this week by a tight Turkish election, ECM bankers are casting their eyes across the Atlantic at the deadlock between US president Biden and the Republican-led US House of Representatives over raising the US debt ceiling.

A deal is still expected, especially as the alternative – a US default would profound implications across the financial system - is unthinkable. But it wouldn’t be the first unthinkable macro event of the past few years.

“We have had US government shutdowns in the past and other debt ceiling negotiations, and it does hit risk appetite,” said the first banker. “It is the sort of thing that isn’t a problem until it becomes one.”