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Panama is meeting local and international investors marketing a
new 2031 dollar-denominated issue. The country is authorized to
sell up to USD2.5 billion to meet 2021 budgetary needs and conduct
liability management through the sale of fixed-rate debt of up to
15-years maturity.
Mongolia is also reported to have mandated banks and started
marketing for international debt. There are also reports that Laos
might be preparing another attempt to raise international funding,
after several prior failures to complete issuance.
Turkish beverage firm Anadolu Efes arranged a benchmark
seven-year dollar deal after the marketing of investors started on
21 June. Initial guidance was set at a low 4% area, with the deal
pricing the same day at 3.5%. The company is rated more highly than
Turkey itself, with 55% of its 2020 EBITDA sourced from Russia and
Kazakhstan. The transaction is linked to a cash tender for USD500
million of 2022 bonds.
It was followed by Turkish Eximbank. Turkey's state export
credit agency raised USD750 million for five years at 5.875%,
sharply inside the initial guidance of 6.5% area.
Kuwait Finance House, an Islamic bank in Kuwait, sold Additional
Tier 1 perpetual liabilities first callable after five years at
3.6%, versus 4% initial guidance. The issue was in sukuk
format.
Two Latin American borrowers are seeking international funding.
Mexican auto parts producer Grupo Nemak is marketing a USD500
million 10-year sustainability-linked bond linked to greenhouse gas
emission levels, while XP Inc., a Brazilian-based investment
manager, is seeking a debut three and five-year financing.
ESG
IFR reported that 2021 Green Bond issuance has reached USD240
billion according to Refinitiv data, close to the full-year level
for 2020, and almost treble issuance in the comparable period of
2020 when social bond sales took greater prominence.
Slovenia undertook a debut sustainability bond on 23 June. It
placed EUR1 billion of 10-year debt at 0.17%, with demand exceeding
EUR8.4 billion. Over 200 accounts participated: 47% of allocations
went to asset managers and 35% to banks.
Bayfront Infrastructure Management, a Singapore-based
institution that offers investors access to Asian
infrastructure-related debt, has organized the region's first
sustainable CDO. It placed a USD401 million CDO including a USD120
million sustainable tranche, with the package including 27 project
and infrastructure loans from 13 countries, of which USD184.8
million were green or social assets. Just over one-quarter of the
portfolio of loans being secured were for renewable energy.
French real estate investor Gecina launched a 15-year Green Bond
and announced its intention to redeem its 2% 2024 issue, of which
EUR377.8 million is outstanding. The firm has reclassified its
outstanding debt as Green, with the new offering its first since
the reclassification. It placed EUR500 million at 0.875%.
UBS arranged a EUR500 million five-year issue and a CHF250
million seven-year deal, both in Green Bond format. The issuance
was conducted under the bank's newly established Green Funding
Framework, which specifies an eligible asset pool of
energy-efficient mortgage loans. Italy's Unicredit is also planning
a Green Bond debut sale shortly.
French electrical utility Engie has sold a EUR750 million
perpetual non-call 10-year Green hybrid, pricing the deal to yield
1.95%.
Virgin Media O2 arranged its first issue since its merger, a
GBP1.13 billion equivalent high-yield package in Green bond format
denominated in sterling and US dollars.
Other debt
Following the EU's successful Next Generation EU ten-year sale
last week, the Kingdom of Spain sold a new syndicated offering at
this maturity.
It raised EUR8 billion with an order book of EUR74 billion. The
issue was priced eight basis points over Spain's outstanding
10-year 0.1% April 2031 issue, versus initial price talk of a
ten-basis point spread. The offering priced at 0.542%, versus
0.114% for its January sale.
Bank supply remains strong:
On 21 June JP Morgan raised USD2.5 billion of four-year non-call
three-year debt, of which USD2 billion was priced at 0.969%, 50
basis points over US Treasuries (and 15 basis points inside
guidance). The remainder was a SOFR-linked FRN. On the same day,
Scotiabank raised USD2.15 billion of two, five, and ten-year bonds,
with the longer tranches priced at 1.366% and 2.164%, each 17 basis
points inside guidance at spreads of 48 and 68 basis points over
Treasuries.
It was followed by Standard Chartered, which sold USD1.25
billion of 11-year debt, callable after 10 years, at 2.678%, 120
basis points over comparable US Treasuries, and 25 basis points
inside initial guidance.
Banco Santander raised a EUR1 billion eight-year (non-call
seven-year) Green issue priced at 0.671%, 78 basis points over
mid-swaps versus initial guidance of 105 basis points. Demand
exceeded EUR2.5 billion. The bank also issued in US dollars,
placing USD1.5 billion of three-year bonds at 0.701%, 45 basis
points over comparable US Treasuries, and 20 basis points through
guidance.
NatWest issued USD750 million of perpetual non-call 10.5-year
Additional Tier 1 debt, priced at 4.6% versus initial price talk of
5.125%. The issue further strengthens the bank's capital base,
which stood at an impressive 18.2% for CET1 capital in its latest
Q1 2021 results.
On 22 June, Vattenfall arranged a rare sterling hybrid bond,
placing GBP250 million of 62-year non-call seven-year debt at
2.5%.
Ford Motor Credit - which is now junk-rated - placed USD1
billion of 10-year debt at 3.625%, versus initial price talk of
3.875% area. The size and pricing suggest limited adverse impact
from its sub-investment grade rating.
By 18 June, according to the Financial Times using Refinitiv
data, 377 sub-investment grade firms have raised USD277 billion in
the US junk bond market. This represents a "record pace", 60% above
comparable issuance in the same period of 2020.
Implications and outlook
The latest FOMC minutes have increased market concerns that the
Federal Reserve might bring forward policy tightening, although
Governor Powell subsequently has indicated that recent inflationary
pressure is still expected to prove temporary.
Despite some fluctuations in longer-dated dollar bond yields,
this week's calendar shows there are no signs so far of a "taper
tantrum" involving widespread efforts by market participants to
reduce risk exposures.
After severe market dislocation in 2013 when the Federal Reserve
first suggested it would taper its post-2009 asset purchases, it
(and other major central banks) have worked continuously thereafter
to provide financial markets with advance warning of their
intentions. Based on our understanding of the Fed's current
approach, we expect that it will continue to use its "dot plot" as
an early indicator of likely US policy direction and timing, with
ample public discussion of potential policy change. It is thus
unlikely there would be a sudden "shock move" that would lead to
market disruption and temporary cessation of primary bond issuance,
developments monetary authorities wish to avoid.
That does not imply that conditions will remain favorable for
all issuers going forward. Faster moves to reduce central bank
purchases would reduce the current heavy support for bond markets.
The prospect of rising US rates will remain a potential drag on the
demand for EM securities given the improved returns they would
encourage on alternative investments. A well-established concern
previously flagged by the European Banking Authority is the level
of market valuation: on pure fundamental grounds it is hard, for
example, to justify the negative returns on large parts of the
European government bond markets. Without central bank "backstops"
in play, there is ample scope for price deterioration.
Counterbalancing this, many emerging market - and other riskier
- borrowers have been able to finance over the last year at
historically low levels. This provides room for some degree of
price reversal without borrowing costs becoming unsustainable.
Overall, IHS Markit expects central banks to be highly sensitive
to preserving financial stability, and to calibrate policy action
carefully. In Europe, the ECB is on a slower trajectory towards
rate tightening than the Federal Reserve, but at some stage we
would nevertheless expect a gradual shift in balance away from the
need to prompt economic recovery towards a renewed focus on
longer-term fiscal discipline. Based on current developments,
near-term "taper tantrum" risk currently appears limited.
Nevertheless, the outlook over a longer period - of say two years -
does carry significant uncertainties and the prospect of tougher
issuance conditions ahead.
Posted 24 June 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence
