Capital Markets Weekly: Successful emerging market bank issuance continues to indicate improving risk climate
Emerging market debt
Mexican bank Banorte sold USD500 million of perpetual non-call 10-year debt with demand of around USD2 billion. On 9 July the bank announced that pricing was set at 8.375%, versus initial price talk at 8.875%.
Oleoducto Central (Ocensa), a Colombian crude oil pipeline operator majority owned by Ecopetrol, gained over USD4.2 billion in peak demand for a USD500 million seven-year deal, priced to yield 4.125%, 366 basis points over US Treasuries. In its statement, the company reported that over 260 investors were involved. Proceeds will repay USD500 million of existing debt maturing in May 2021, "extending the company's debt profile and maintaining its capital structure at effective cost".
51% state-owned Indonesian oil company PTT is reported by Reuters to have raised USD700 million for 50 years, the longest term for a dated Asian corporate bond, paying 3.7% for the deal, which was priced on 9 July. The transaction was increased from USD500 million. The report notes that Indonesia raised USD1 billion of 50-year debt at sovereign level in April, the first state issuance in Asia at that term.
Philippine issuance has been active, with three new deals in the week to 10 July:
- Port company International Container Terminal Services raised USD300 million of 5% perpetual debt, shortly after selling USD400 million of 10-year bonds in June yielding 4.8%, which had gained USD1.85 billion in demand from over 111 accounts, 80% of which were in Asia according to its statement. The new perpetual sale is related to a tender for an USD450 million 5.5% outstanding perpetual debt issue.
- In addition, BDO Unibank sold USD600 million of 5.5-year 2026 debt with a 2.125% coupon, which attracted USD2.9 billion in demand according to a domestic filing, and Metropolitan Bank & Trust raised USD500 million of 2026 debt at the same coupon.
Tengizchevroil, a joint venture in Kazakstan 50% owned by Chevron, 25% by Exxon Mobil Kazakhstan and 20% by KazMunayGas which operates the giant Tengiz field, has mandated banks for a two-tranche dollar sale.
The Emirate of Sharjah has mandated banks to arrange a benchmark dollar sale of 30-year debt in Formosa format, targeting Taiwanese institutional buyers. The issue would be its first in Formosa format and for a maturity of over 10 years. Sharjah already targeted domestic Chinese markets in 2018, with a CNY2 billion issue, with the new operation potentially tapping a new investor base as well as extending its maturity schedule.
West African telecommunications company Sonatel is arranging a West African CFA franc issue with support from the Emerging Africa Infrastructure Fund. It is seeking up to XOF100 billion (USD170 million) of 6.5% 2027 debt, targeting regional pension funds and other institutional investors. Proceeds will be used to expand its 4G network and improve service platforms, with the company investing in additional areas such as banking and multimedia content. The issue is fully underwritten by the Emerging Africa Infrastructure Fund (EAIF), which is also subscribing for XOF50 billion to underpin the deal. Sonatel is Senegal's leading telecommunications operator, but also operates in Mali, Guinea Conakry, Guinea Bissau and Sierra Leone. In all these markets, it is the largest telecommunications operator, offering fixed line and mobile telephony, internet, television and mobile money services within its products. It is 42% owned by the Orange Group.
China's largest chip manufacturer, SMIC, is conducting the largest IPO this year, floating its Hong Kong listed shares on the Shanghai stock exchange. The sale, which started on 7 July, is for 1.685 billion shares at CNY27.46 each, to raise CNY46.28 billion (USD6.6 billion): after a green-shoe of 1.938 billion shares the deal could grow to CNY53.2 billion (USD7.59 billion). The issue is for double the amount proposed in a prior filing. The offering is the largest Chinese domestic sale since the 2010 offering by Agriculatural Bank of China.
SMIC is a strategic vehicle for China's efforts to develop domestic semiconductor capacity. The company raised USD2.25 billion in May from two state-backed funds, according to Caixin, which also suggested that the company had been given accelerated approval for its filing on the STAR market, Shanghai's technology oriented equivalent of Nasdaq.
China Bohai Bank, headquartered in Tianjin, priced on 9 July the largest Hong Kong IPO offering in 2020. It sold 2.88 billion shares at HKD4.80 per share, versus a range of HKD4.75-4.98, raising HKD13.82 billion (USD1.78 billion). Trading starts on 16 July.
Within the offering, TEDA Investment Holdings, previously the bank's largest shareholder, cut its stake from 25% to under 20.85%, while Standard Chartered, which had owned 20%, reduced its holding to under 16.67%.
SMIC's deal, the largest flotation this year, and China Bohai's IPO come against a recent surge in Chinese share prices with another Chinese firm, technology firm QuantumCtek gaining a remarkable 1000% on first day trading in Shanghai, a record level for first day appreciation. It also follows JD.com and NetEase having raised a total of USD6.6 billion through secondary listings and placings in Hong Kong last month.
Banorte's successful sale of perpetual debt is a further positive indicator of the recovery in emerging market conditions, which is improving the range of banking-sector issuers and instruments used.
Banorte is a large and strongly-capitalized bank: on 10 July our Banking Risk specialist Alejandro Duran-Carrete noted that the bank is the only domestically-owned firm among the six Mexican banks designated by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores: CNBV) on 9 July as of domestic strategic importance. As of April 2020, Banorte has the strongest capital ratio - 19.48% - among this group, comfortably ahead of the next-best capitalised firm (Santander, with 15.84%), suggesting that its capital raising is pre-emptive - to address potential expansion in impairment due to the COVID-19 pandemic - and to underpin further expansion. The bank's press release simply described the proceeds as "for general corporate purposes".
Its successful AT1 deal - and the tightly-priced Philippine offerings - nevertheless both indicate the wider trend described above. Among recent emerging market bank deals, the most notable in our view was Akbank's ability to raise a three-times subscribed USD500 million 6.8% 5.5-year offering, the first Turkish bank bond sale during the COVID-19 pandemic. CEO Hakan Binbasligil described the sale as coming in a "challenging period" but noting that "the markets started to open with the support packages announced, the easing of the restrictions and other measures", according to his statement on 1 July.
Within markets that remain volatile, recent supply does suggest that more banks will be able to access international debt, and that a wider range of instruments, including capital securities, are increasingly available for emerging market bank issuers, although the latter are more likely to involve larger and stronger banks within the segment. While it may still be premature to suggest that full market access has been restored for the sector, to the levels prevailing in the highly-receptive markets in early 2020, the trend is clearly positive.
Lastly, EIAF's initiative with Sonatel is a risk-positive development helping the expansion of local capital markets in the region. EIAF is funded by four governments - the UK, Netherlands, Switzerland and Sweden - along with African Development Bank, KFW and FMO together with private sources such as Allianz and Standard Chartered Bank. The fund is playing an important role in improving access to capital for regional firms: it recently served as the anchor investor for Helios Towers' USD750 million bond issue, initially subscribing for USD300 million of the 7% 5.5-year deal, when it was first launched with a USD425 million target. Given strong demand elsewhere, it eventually reduced its participation to just USD30 million of Helios's upsized issue.
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