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Capital Markets Weekly: Emerging market activity revives sharply despite reduction in ECB asset purchases
As expected, emerging market supply has expanded substantially after Labor Day.
Indonesia gained USD6.7 billion of demand for a USD 600 million tap of its outstanding USD 2.15% 2031 issue, priced at 2.18% versus 2.5% area guidance, alongside a new USD650 million 40-year bond priced at 3.28% versus of 3.6%. Dollar proceeds will fund a USD1.25 billion tender for eight outstanding issues due between 2022 and 2026. It also sold 12-year Euro-denominated sustainable debt, priced at 1.35%, over 20 basis points tighter than guidance.
Turkey raised USD2.25 billion, tapping its 6.125% 2028 bond with USD750 million at 5.7%, versus 5.95% guidance, and placing a new 12-year bond at 6.5%, also 25 basis points through guidance.
Hungary sold USD4.25 billion of dollar debt, comprising a USD2.25 billion 10-year deal at 2.279%, 100 basis points over comparable UST and 30 basis points below initial price talk, and USD2 billion for 30 years at 3.344%, 150 basis points over UST, and the same margin through guidance. On 13 September, Debt Management Agency AKK issued a statement that the country had modified its financing plan to allow for up to EUR4.5 billion of issuance "to bridge finance potentially delayed EU RFF transfers" and pre-finance some 2022 outlays.
Russia's Tinkoff Bank has raised USD600 million of Additional Tier 1 debt, first callable after 5.25 years, in its first international issue for four years. The issue was priced at 6% to first call. Tinkoff describes itself as the "leading financial innovator in Russia". It reports that it is the second largest credit card issuer in Russia, with a 13.5% market share, and "one of the most profitable banks in the world" with an ROE of 43.7% in the first quarter of 2021.
Uruguay mandated two Japanese investment banks to arrange a roadshow to market its credit in Japan and with other Asian investors, prior to the potential sale of yen-denominated debt. Herman Kamil, Head of Sovereign Debt Management, indicated a sale would be made within 2021.
Alfa Desarrollo, a Chilean entity 80% owned by APG Energy, in turn part of Dutch pension fund AFG, placed a USD1.1 billion 30-year bond at 4.55% versus low 5% area initial guidance. The proceeds are to fund the acquisition of Colbún's transmission subsidiary, in a USD1.295 billion deal agreed at the end-March 2021.
Chilean State oil company Empresa Nacional del Petroleo also issued, placing USD560 million of 10-year debt at 3.492%, 220 basis points over comparable US Treasuries. The issue will fund the repurchase of its 4.75% December 2021 issue.
Chilean borrowers are currently particularly prominent within Latin American supply with supply also coming from last week's USD500 million 40-year deal for Empresa de los Ferrocariles del Estado de Chile, the country's state railway system and ESG issuance by Entel and SQM described below.
Emerging market ESG supply also has revived significantly, including two transactions from the Turkish banking sector on 9 September.
Vakifbank placed USD500 million of five-year sustainable debt at 5.625%, versus price talk of 6.125-6.25%. Despite the sharp tightening in pricing, the deal provided a 26.5 basis point premium to 5.36% yield on the bank's outstanding 6.5% 2026 sustainable deal.
On the same day, Kuveyt Türk, an Islamic bank 62.2% owned by Kuwait Finance House, sold USD350 million of 10.25 year (non-call 5.25 year) sustainable debt at 6.125%, versus guidance of 6.625-6.75%.
Brazilian paper and pulp firm Grupo Suzano enjoyed a strong reception for sustainability-linked debt. It placed USD500 million of seven-year debt at 2.7% yield, versus initial price talk of 3.1%, gaining demand of USD3.4 billion. It will be followed by B3, which operates São Paolo's stock exchange, which has started marketing sustainability-linked debt.
Empresa Nacional de Telecomunicaciones de Chile sold USD800 million of 11-year sustainability bonds at 3.05%, 175 basis points over US Treasuries and 25 basis points inside initial guidance. Demand reached USD3.4 billion. The issue will be redeemed in equal amounts in 2031 and 2032: with the firm repurchasing an equal amount of debt maturing between 2022 and 2026, it will extend its maturity schedule by an average of five years.
Also from Chile, chemical firm SQM gained USD3 billion of demand for a new USD700 million 30-year Green bond, priced at 3.545%, 165 basis points over comparable US Treasuries and 30 basis points tighter than guidance. Proceeds are to fund eligible projects with a focus on lithium production.
Chile also issued ESG debt at the sovereign level. On 14 September it first sold EUR918 million of long seven-year social bonds priced at 0.555%, mid-swaps plus 70 basis points. It followed with a USD1 billion 50-year social bond at 3.42%, 158 basis points over US treasuries (versus 190 bp guidance). Chile's Treasury announced that demand reached EUR3.746 billion and USD5 billion respectively. ESG debt now represents 24.6% of Chile's debt stock.
After the recent USD750 million sale of Green debt by Adani Green Energy, Power Finance Corporation extended its prior Green issuance in US dollars to the Euro sector. It sold EUR300 million of seven-year bonds at 1.841%, 200 basis points over mid-swaps and 30 basis points tighter than initial indications.
On 9 September, India's Business Standard website reported that Indian corporate ESG sales have raised over USD6 billion so far in 2021. This represents a major acceleration: Bloomberg data cited by Economic Times of India showed USD1.27 billion of ESG sales by Indian firms in 2020.
Siberian Coal Energy Co placed a USD500 million five-year debut dollar bond on 8 September. Despite its controversial sector, the issue gained USD1.8 billion of demand, pricing at 3.375% versus guidance of 3.75%-3.875%. 170 accounts reportedly participated, with a lead manager reporting "huge demand", with a skew towards Russian and Cyprus-based (offshore Russian) demand, but with European and US involvement as well.
The European Union sold EUR9 billion of seven-year debt on 14 September, its latest issuance under its Next Generation EU program. The deal was priced at -0.28%, 14 basis points below mid-swaps, two basis points tighter than initial guidance, with demand of EUR103 billion, the largest order book for sub-10 year date achieved by the EU. 39% of demand was from the UK, followed by Benelux and Nordic buyers with 11% and 10%. Fund managers took 36%, official buyers 31%, and banks 21%.
Within an active primary calendar, Morgan Stanley raised USD3 billion of Tier 2 subordinated debt, its first such sale since 2015 according to IFR. The 15-year issue, first callable after 10 years, was priced at 2.484%, 117 basis points over comparable US Treasuries, versus guidance of 135 basis points. It was followed by Bank of America, which placed USD2 billion using the same structure at a 120 basis point margin, versus the same guidance.
Coinbase sold seven (non-call three) and ten-year (non-call five year) debt, raising USD 2 billion at 3.375% and 3.625% after reportedly seeking to raise USD1.5 billion, with the longer tranche marketed at low 4% area. The firm reported having over 68 million users, of which 8.8 million were active, and to have traded USD462 billion in quarterly volume through its platform, which spans 100+ countries, in its latest quarterly release, also reporting net income of USD1.6 billion.
The issue comes shortly after the SEC threatened to take legal action against the firm over its plans in respect of its Lend project, offering interest on cryptocurrency holdings. In May, Coinbase raised USD1.25 billion of convertible debt in a five-year issue, priced with a 0.5% coupon and 55% premium: the new sale represents the first traditional bond sale from the digital currency sector.
Implications and outlook
This week's calendar has been sizeable and well-received, continuing to suggest that financial markets are accepting a degree of reduction in central bank purchases - already announced by the European Central Bank last week - without experiencing a "taper tantrum.
Emerging market activity has revived substantially although Indonesia, Hungary and Chile are all investment grade credits: issuance by weaker credits would represent a tougher test of risk appetite. In this regard, the combination of sovereign issuance and two bank sales from Turkey is a favorable indicator of risk appetite, as is the ongoing tightening in its trading spread since March.
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