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Within 2021's first week of issuance, Mexico and Indonesia
successfully raised 50-year debt and Slovenia raised 10-year
funding at negative cost for the first time, while an
Argentina-based e-commerce firm attracted strong demand for its
debut bond sale: a highly-successful 15 year offering by Italy and
a clearly-sub-zero 10 year sale by Ireland reinforced investor
appetite for longer duration instruments.
Emerging markets
Mexico is the first Latin American sovereign borrower in 2021.
On 4 January, it sold USD3 billion of 3.75% 2071 notes, targeted at
the Formosa market in Taiwan. The deal reportedly gained USD10
billion in demand, with pricing tightened from guidance of
4.1%.
Asian debt markets started 2021 strongly. On 3 January, four
Chinese property company companies launched dollar-denominated
bonds, two of which were in Green Bond format, within an initial
calendar of six-dollar deals. On 5 January, IFR Asia reported that
daily supply was the busiest on record, with 15 issuers reported as
issuing.
Exim Bank of India set a record low coupon of 2.25% on its USD1
billion 10-year deal. Pricing was tightened by 40 basis points
versus initial guidance with the deal over 3.5 times
subscribed.
On 6 January, State bank of India arranged USD600 million of
5.5-year senior funding through its London branch, gaining demand
of over USD2 billion according to Livemint reports. The deal
attracted six major lead managers and a positive reception despite
the use of proceeds reportedly being linked to finance of Adani's
Carmichael coal project in Australia.
Indonesia also issued, placing USD3 billion in a three-tranche
offering alongside a EUR1 billion offering. It placed 10, 30 and
50-year debt at 1.9%, 3.1% and 3.4% respectively, placing USD1.25
billion each of the first two tranches.
Late in 2020, on 21 December Laos had delayed its planned dollar
issue. In a government statement it advised that it "looks forward
to continuing its engagement with the market in a few weeks",
noting that it was "late in the year" to complete an offering. It
had been reported to have started marketing a six-year amortizing
deal with 10% area guidance on 17 December, but its announcement
shows this failed to gain suitable traction. The country faces
redemptions of around USD1.1. billion annually for the next few
years, including a Thai baht issue and USD150 million of dollar
debt due in June 2021, while its reserves are a modest USD1.35
billion, under three months import cover.
ESG
Brazilian paper manufacturer Klabin completed a
sustainability-linked bond, incorporating coupon penalties if the
firm fails to meet goals related to water consumption, recycling
and ecosystem performance indicators. The company already has been
a regular issuer of Green Bonds since 2017. It placed USD500
million of 10-year debt at 3.2%, versus initial guidance of 3.75%
area, on the back of strong demand. Proceeds will be used to redeem
outstanding amounts of the company's 5.25% 2024 issue and other
corporate purposes.
Brazilian investment bank BTG Pactual also undertook
sustainability-linked issuance with a five-year dollar deal. It
sold USD500 million of five-year bonds at 2.875% yield versus low
3% initial guidance, with the firm claiming demand to have reached
USD1.1 billion. Proceeds will be used to fund green projects.
InterAmerican Development Bank started the year with a USD4
billion 10-year sustainable development deal, which was doubled in
size after demand exceeded USD5 billion. IADB's statement to Latin
Finance flagged that the deal was its "largest ever 10-year USD
global benchmark".
Within Latin American supply, MercadoLibre, an
Argentine-headquartered e-commerce firm that enables digital and
mobile payments, enjoyed clear success with a two-tranche offering
including a five-year sustainable deal, its debut in the
international capital markets. It placed USD1.1 billion: it offered
USD400 million of five-year sustainability bonds at 2.375% and
USD700 million of ten-year debt at 3.125%. Demand reportedly
exceeded USD15 billion.
Other debt
US supply enjoyed its traditional early-January rush, with
almost USD50 billion of debt sold in the first two working days of
the year: total issuance this week will amply have exceeded the
prior USD52 billion record from 2017.
Within Europe, sovereign supply also started strongly with Italy
announcing a syndicated 2037 deal on 4 January.
Italy's deal was launched on 5 January, rapidly gaining EUR105
billion in demand from over 520 investors. It priced a EUR10
billion deal at 0.99%. 57.8% of the deal was bought by asset
managers and 26.3% by banks. Domestic buyers took 26.3% of the
deal: UK subscribers led international demand with 29.1% of the
allocations.
These deals were accompanied by Ireland, which gained EUR48
billion in demand for a long 10-year deal from 240 accounts.
Ireland's 2021 borrowing needs were announced in December as
being EUR16-20 billion, versus EUR24 billion of issuance of
long-term debt in 2020. The country flagged at the time that it has
no bond redemptions due in 2021 and lower redemptions for the next
four years, permitting it to enjoy "flexibility in meeting future
borrowing requirements".
Ahead of the sale, Ireland's 10-year bond yield reached a record
low of -0.34% on 4 January. NTMA's cheapest issuance to date was a
seven-year auction at -0.42% last October. Pre-launch, market
commentary had estimated it would seek EUR3-4 billion at around
-0.25%: the strong demand permitted a EUR5.5 billion offering
priced at -0.257%.
Also on 5 January, Slovenia mandated banks for a new 10-year
issue and a tap of its October 2050 outstanding deal, placed in
October 2020 at 0.493%. Slovenia raised EUR1.75 billion of ten-year
funding at -0.096% with demand reportedly exceeding EUR10.6
billion. Its Finance Ministry noted that "for the first time in its
history Slovenia issued today a long-term bond with a negative
yield to maturity". It also tapped the 2050 deal with EUR250
million at 0.381%, with the add-on oversubscribed.
European Investment Bank attracted over EUR30 billion in demand
for its first Euro-denominated reference bond in 2021, a 10-year
sale. It has slated 2021 issuance at EUR60 billion, with
authorization to fund up to EUR70 billion, the same amount it
raised in 2020 including 2021 pre-financing
Spanish regional bank Abanca sought Additional Tier 1 funding
with a perpetual non-call 5.5-year offering. On 7 January, it
attracted over EUR2.1 billion for the deal at guidance of mid to
high 6% area until first call: it priced EUR375 million at 6%,
largely with European institutional buyers.
Overall, US high-grade primary supply has been very sizeable:
seven borrowers priced USD23.5 billion on 4 January, including a
USD10 billion package for Broadcom, linked to a USD2.75 billion
liability management exercise, which gained USD28 billion in
demand, followed by 15 issuers with USD19.25 billion on 5 January.
This bettered estimates for likely supply for the full week with
total issuance breaching the 2017 record.
Our take
This week's heavy supply reflects traditional deal-flow at the
start of the calendar year, when both borrowers and investors have
new programs, and is a regular annual seasonal feature of the
markets.
Nevertheless, there are several encouraging indicators,
including both Mexico and Indonesia accessing 50-year funding,
strong demand for Italy's 15-year sale and both Ireland and
Slovenia's impressive 10-year placements, the latter being
Slovenia's first sub-zero 10-year borrowing.
Mexico's successful long-dated issue fits within the wider trend
in recent months of Emerging Market borrowers extending the
duration of their borrowings at historically low rate levels. It
also reflects a diversification of Mexico's investor base, coming
despite ongoing concerns over policy direction and the heavy debt
burdens of state-owned energy company Pemex.
MercadoLibre can be viewed as a pan-regional rather than an
Argentine transaction. The company operates in 18 countries across
Latin America including Brazil, Chile, Colombia, Mexico and Peru.
Its 2019 Annual Report noted that 63.6% of its consolidated net
revenues were earned in Brazil, 19.9% in Argentina, 12.0% in Mexico
and 4.5% elsewhere.
Against the positive trend, Laos's inability to issue late in
2020 appears risk negative. Laos is a relatively weak credit, and
its timing in planning a sale late in 2020 seemed far from optimal.
Ability to complete a sale in January will clarify Laos's market
access with its overall debt sustainability currently under review
by IHS Markit.
Posted 08 January 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit