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Capital Markets Weekly: Emerging market borrowers plan liability management to extend duration

13 January 2021 Brian Lawson

Emerging markets

Multiple emerging market issuers are repurchasing existing liabilities and extending their debt:

Republic of Colombia announced on 12 January a global offering tapping its outstanding USD1 billion 3.1% 2031 deal and placing new 40-year debt. It sold USD1.3 billion of 40-year debt at 3.99%, 210 basis points over comparable US Treasuries, alongside a USD790 million tap of the 2031 debt at 2.8%, versus its 3.1% June 2020 launch level.

In parallel, it launched a one-day tender for its outstanding 4.375% 2021, 4% 2024, 4.5% 2026 and 3.875% 2027 bonds.

Argentine state-owned energy company YPF previously announced an exchange offer for a total of USD6.2 billion of outstanding debt in seven issues with maturities in 2021, 2024, 2025, 2027, 2029 and 2047, planning to issue new 8.5% bonds due in 2026 and 2029 and 7% bonds due in 2033 in their place. The operation, filed on 8 January, also will seek approval for adjustments to some of the company's financial covenants. In its statement YPF stresses that it is not seeking capital haircuts or a reduction in coupons. The voluntary exchange offer will run for 20 working days, with incentives for exchange in the first 10 days (expiring 21 January). It appears not to have been well received: according to Latin Finance a creditor committee has retained two legal advisers and is looking "to engage constructively with the company" seeking better terms.

Brazilian meat producer Marfrig is marketing up to USD1 billion in new seven-year debt to tender for up to USD1.25 billion of the firm's outstanding 6.875% 2025 and 7% 2024 notes.

Benin is also reported to be marketing Euro-denominated debt, the first Sub-Saharan issuance in 2021 (with Cote D'Ivoire the sole issuer from the region since the COVID-19 pandemic). It has announced plans to issue a new EUR-denominated benchmark and a tender to repurchase its EUR500 million 5.75% amortizing 2026 issue. It is seeking an eleven-year issue with 10-year average life but may also incorporate a longer-dated tranche. A new sale would be Benin's second international issue, after its 2019 debut.

Cemex has placed USD1.75 billion of 10.5-year bonds at 3.875%, versus initial price talk of low to mid-4% area. The secured offering is first callable after 5.5 years. Proceeds again will be used to repay existing debt, and for general corporate purposes.

Crédito Real, a Mexican consumer finance firm, sold USD500 million of 8% seven-year debt, versus initial guidance of low to mid-8% area. Proceeds will cover the repurchase of USD215 million of 7.25% 2023 bonds

New debt

Turning to new borrowings, according to an International Financial Review report on 11 January, Mexico is preparing issuance in Euros, and will also look at a sustainable debt issue in the Samurai (Japanese domestic) market.

Also from Mexico, Nueva Elektra del Milenio, the retail unit of Grupo Elektra, sold a debut seven-year USD500 million offering at 5%, versus guidance of low-5% area.

Oman has mandated banks for a dollar issue, reportedly seeking 10 and 30-year funding. According to Arab News on 13 January, it is also seeking a USD1.1. billion 15-month bank facility, largely from regional lenders, which could expand to USD2 billion. The facility has a one-year borrower extension option.

Dubai Aerospace sold USD500 million for five years (March 2026) at 2.625% and USD750 million of March 2028 debt at 3.625%. Demand reached USD3.1 billion.

First Abu Dhabi Bank arranged a USD500 million 5-year sukuk issue, priced at 90 basis points over mid-swaps.

Kingdom of Saudi Arabia is described by Emirates NBD research as at early stages of preparation for a sizeable sovereign debt sale in US dollars.

Less positively, Belize's Prime Minister John Briceno has stated that the country does not want payment deferrals in its debt restructuring as "it just continues to cost the Belizean people more". Instead, he stated the intention to tell bondholders "we have to get a cut", seeking a principal haircut on Belize's "Superbond" due in 2034, worth over USD1 billion.

ESG

Italian communications company TIM marketed an eight-year Euro-denominated sustainable benchmark at 2.25% area. It attracted over EUR4 billion for a EUR 1 billion offering, priced at a 1.625% coupon. In its statement the company claimed that the deal was at "half the Group's average cost of debt" and priced through secondary market reference points.

Hong Kong based New World Development, a property developer, sold a USD200 million 10-year deal on 8 January, the first sustainability linked offering from a non-Japan Asian borrower and the first involving a property company. The issue, priced at a 3.75% coupon at 275 basis points above US Treasuries, was priced with a five-basis point negative new issue premium, reflecting demand six times the issue size. 80% of the deal allocation was taken by ESG investors. The issue has a sustainability performance target of reaching 100% renewable energy for its Greater Bay Area rental properties by the end of the 2025/26 financial year. If the company fails to achieve the target, it will purchase carbon offsets equivalent to 25 basis points a year from 2027 until the bond's maturity.

Turkey's Industrial Development Bank (Turkiye Sinai Kalkinma Bankasi) has arranged a debut sustainable bond. On 7 January, it placed a USD350 million five-year deal which gained over USD2 billion in demand. Pricing was improved from an initial guidance level of 6.5-6.25% to final pricing at 6%. The bank, founded in 1950 with support from the World Bank and Central Bank of Turkey, is a privately-owned development and investment bank.

Brazilian company Simpar is reported by Latin Finance to have selected banks and started marketing for a dollar-denominated benchmark sustainability-linked issue. On the same day it announced a tender for its USD625 million 7.75% 2024 issue.

Bank of China sold its first transition bond on the same day. This comprised a USD500 million three-year bond alongside a two-year CNY1.8 billion (USD278 million) offering, both by its Hong Kong branch: proceeds will fund transition projects.

On 12 January, French agency CADES announced that it had sold a USD5 billion 10-year deal at 23.8 basis points over comparable US treasuries. The issue, a Social bond, is the agency's largest to date. It was twice subscribed, with 130 subscribers while 40% of demand came from ESG dedicated buyers.

Other debt

The European Financial Stability Facility (EFSF) launched a two-tranche deal on 11 January, comprising ten-year and 31-year portions priced at mid-swaps minus 11 basis points and +9 basis points respectively. Final demand stood at EUR71 billion.

In addition, SNCF launched 40-year funding in Euros. Canada Pension Plan Investment Board also was active at the long end of the market with a well-received 20-year deal.

Kingdom of Spain has attracted EUR88 billion for a new syndicated offering while Belgium has mandated banks for an October 2031 OLO in syndicated format.

Lastly Korea Development Bank placed USD1.5 billion in a three-tranche sale comprising a three-year five-month Green Bond, 5.5 and 10-year debt, with pricing described by IFR as a "record low spread".

Our take

Within this week's activities the success of Turkey's Industrial Development Bank is a further indicator of the improved sentiment towards Turkish risks since the change in policy direction by its central bank.

The key theme this week has been liability management by multiple emerging market borrowers. This complements the use of new longer-duration stand-alone issuance and is risk positive, reducing emerging market refinancing risks and locking in prevailing historically low rates.

The prospects for a successful sale by Benin have improved in recent months. From trading levels around par in early October, its outstanding bond traded as high as 106.5% this week.

Less positively, Belize's stance in seeking capital write-down on its outstanding debt, serves as a reminder that the Emerging Market category faces uneven performance. Countries with severe debt sustainability stress are likely to continue seeking fundamental restructuring, rather than just temporary relief from debt service. IHS Markit has flagged repeatedly that private sector investors will be considerably less flexible than official lenders. Belize and Zambia are among those with difficult negotiations still ahead.

Posted 13 January 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit

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