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Capital Markets Weekly: Emerging market issuance and IPO successes continue
Dominican Republic tapped its 4.875% 2032 issue, having originally sold USD1.8 billion at par in late September within a USD3.8 billion package that attracted USD9.6 billion of investor interest at the time. It placed a further USD1.266 billion on 8 December priced at 4.1%, having opened books with initial guidance of 4.875%.
On 3 December, the country announced that S&P had left its rating unchanged, with all three of its main ratings confirmed within 2020. Treasury Minister Jochi Vicente claimed that this represented outperformance within the region, highlighting that almost 55% of Latin American and Caribbean sovereign issuers reviewed this year had suffered a ratings downgrade.
Plans for the sale were announced initially last week, with the use of proceeds specified as being to finance repurchase of high coupon debt maturing between 2021 and 2025 (its 7.5% 2021, 6.6% 2024, 5.875% 2024 and 5.5% 2025 issues). On 8 December it also announced that USD2.105 billion nominal amount of the outstanding deals had been tendered, which declines to USD1.259 billion after reflecting prior amortization.
Itaú Unibanco announced on 3 December that it has arranged a private placement of USD2.1 billion of subordinated debt, due after nine and ten years. The bank's statement, which did not offer pricing details, stated that it will seek to have the debt treated as Tier 2 capital, adding 20 basis points to its Tier 2 capital ratio.
On 7 December, Chilean state copper miner Codelco raised USD500 million of 31-year debt in parallel to a repurchase offer for USD1.1 billion of liabilities due between 2021 and 2027. CFO Alejandro Rivera described the new issue as having achieved "high demand" while noting that the exercise reflected Codelco's policy of "decreasing debt maturities in periods of intensive investment". The issue gained over USD4.5 billion in demand from over 230 orders, being priced at 3.173% or 148 basis points over US Treasuries. Codelco's statement noted that this is the lowest rate it has ever achieved for 30-year finance.
EnfraGen, a Latin American power generation and infrastructure firm owned by US entity Glenfarne and Swiss investor Partners Group, completed its international debut on 9 December. It sold USD710 million of 10-year debt at 5.5% versus initial guidance of 5.75%.
Morocco arranged a USD3 billion bond sale of seven, 12 and 30-year debt, its largest on record. It placed USD750 million for seven years at a 2.75% coupon at a 175-basis point margin over US Treasuries, USD1 billion for 12 years with a 3% coupon at a 200-basis point spread and USD1.25 billion for 30 years at 4%.
In late September it raised EUR1 billion split between 5.5 and 10-year terms, pricing at 1.375% and 2% respectively, with demand exceeding EUR2.5 billion. However, this appears to have served to repay its EUR1 billion 4.5% October 2020 bond, rather than raising new finance. Nevertheless, according to Bank Al Maghrib, the central bank, foreign exchange reserves had reached MAD291.6 billion by 27 November, up 18.1% on a year previously.
Kuwait's Burgan Bank has arranged USD500 million of December 2031 subordinated debt, priced at 2.75% and first callable after six years. In November it gained central bank approval to redeem KWD100 million (USD326 million) of capital securities issued in 2016 on their first call date in 2021. The bank is Kuwait's second largest by assets.
Montenegro became the third Emerging Market sovereign issuer this week, launching a seven-year Euro-denominated deal on 9 December. The EUR750 million offering was priced at 2.87%, with demand exceeding EUR2.4 billion. The country's new coalition administration was appointed in parliament on Friday and took office on Monday 7 December, following elections in August which displaced the Democratic Party of Socialists from office after an extended period of nearly 30 years.
Samhällsbyggnadsbolaget i Norden AB (SBB), a Swedish company founded in 2016 to focus on social infrastructure residential properties, has placed the unusual mixture of a debut social bond and a perpetual hybrid issue. It sold EUR500 million each of an eight-year social bond and a perpetual bond first callable after 5.25 years, priced at 0.75% and 2.625% respectively.
Fibra Prologis, owned by US REIT Prologis, has sold USD375 million of 2032 debt at 4.12%: the issue will be repaid in equal instalments in 2028, 2030 and 2032. The issue, which reportedly was sold in Mexico's domestic market, an innovative channel for dollar funding, is in Green Bond format and will repay existing loans funding green construction projects.
On 4 December, DoorDash adjusted the pricing for its sale of 33 million shares to USD90-95 each, after setting initial guidance of USD75-80, bringing its potential deal size to USD3.1 billion. In a filing on 7 December, Airbnb also moved its pricing upwards to USD56-60 per share versus initial price talk of USD44-50. At this level, it sought to raise USD3.4 billion.
DoorDash went on to price its IPO above its revised range at USD102 per share, bringing the offering close to USD3.4 billion, with its shares opening at a strong premium. They closed first day trading at an impressive 86% premium to the revised pricing (at USD189.51).
Airbnb also appears on a similarly positive trajectory. Its IPO was priced at USD68 per share, also above its revised guidance, with proceeds reaching USD3.4 billion. Trading starts today.
Also, in the market this week was a USD504 million offering from software firm C3.ai. The firm is offering 15.5 million shares on the NYSE at USD31-34, with BlackRock, and existing shareholder, and Capital Research, as a new investor, planning to take 20% of the offering. Koch Industries and Microsoft are buying a combined USD150 million of equity in a concurrent private placement.
Additionally, biostimulation software and services firm Certara is selling 24.4 million shares at USD19-22, seeking a Nasdaq quotation.
In the first week of December, eight IPOs and ten SPAC sales raised a combined USD3.9 billion, with the latter category dominating deal flow with proceeds of USD2.6 billion. Four of the eight new companies listed were from the biotech sector. For this week, the calendar of six IPOs and two SPACs is seeking an aggregate of over USD7.5 billion.
On-line Chinese pharmaceuticals and healthcare firm JD Health successfully completed its IPO, with its shares opening at around a 50% premium on 8 December. In the first large-scale Chinese technology offering after the withdrawal of Ant Group's record deal, it placed 339.9million shares at HKD70.58 (USD9.11) each, raising USD3.5 billion. During first day trading it reached a 75% premium before closing up 56%.
Rede D'Or, a Brazilian private healthcare firm, raised BRL11.3 trillion (USD2.19 billion) from its IPO, priced on 8 December at the middle of its indicated range. BRL8.44 billion represented a capital increase by the company, with the remainder sold by existing shareholders including GIC, Singapore's sovereign wealth fund.
Implications and outlook
This week's developments continue the recent trend of receptive markets for both debt and equity. The upward revision of pricing for two simultaneous large-scale share sales in the US markets is a clearly-positive indicator and complements successes in other global markets - notably the Hoing Kong IPO of JD Health- in flagging favorable overall conditions.
Within this week's supply, the sale by the Dominican Republic is strongly positive. The degree of price tightening versus initial guidance was unusually large, and the country has lowered its borrowing cost for 2032 debt by 77 basis points since mid-September, an impressive improvement. While the recent passage of its budget and the avoidance of wide-ranging tax increases near-term fiscal clarity, the country is heavily reliant on tourism - 12% of its GDP - and there has been no fundamental change, in our view, in its current circumstances: the improvement instead suggests a positive shift in expectations.
This week's developments contain several other positive indicators: the sizeable sale by Morocco, the increased volume for Jaguar LandRover's offering, and new yield lows for both Spain and Portugal, with the latter almost - but not quite - managing to enter the "negative yield club" for its 10-year reference bond.
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