Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Among this week's highlights indicating emerging market focus on
accessing long-term debt are a 30-year issue for the Emirate of
Sharjah and plans by Brazilian petrochemical company Braskem to
raise hybrid debt, following recent perpetual sales by Emirates
NBD, Banorte and DP World: the only long-dated emerging market
issue which appears to have faced some investor resistance was the
recent USD1 billion 9.5% 2052 issue for El Salvador, but this is
unsurprising given its past debt history including Selective
Default events in 2017, making its ability to access USD1 billion
of long-dated funding in significant volume an impressive positive
development.
Emerging market issuance
The Emirate of Sharjah has priced a Formosa offering, long-dated
dollar debt targeting Taiwanese investors. On 14 July it sold USD1
billion at 4%, versus price guidance of 4.375%: demand reached some
USD3.7 billion. The offering is Sharjah's first benchmark deal in
non-Islamic format.
Brazilian petrochemical company Braskem has announced plans to
sell hybrid debt. It has appointed banks to arrange a dollar sale
of 60.5-year debt.
Mexican real estate investment trust Fibra Uno gained USD2
billion in peak demand for a USD650 million tap of its outstanding
4.869% 2030 and 6.39% 2050 notes. It sold USD325 million for the
shorter term at 4.95% (versus low to mid 5% area guidance) and
raised USD275 million for 30 years at 6.25%. The fund-raising was
upsized from USD500 million given the strong demand, according to
the company's statement.
Additionally, Ultrapar, a Brazilian conglomerate, tapped its
5.25% 2029 notes with a further USD350 million, priced at 5.25%
yield versus mid-5% area guidance. Demand exceeded USD500
million.
Tengizchevroil opened books on its planned dollar deal with
guidance for a five-year tranche at 3.125-3.25% and 3.875% for a
ten-year portion. It priced USD500 million for five years at 2.75%,
with USD750 million raised at 3.375% for the 10-year tranche.
ESG
Dutch utility TenneT, which is in discussions with both the
Dutch and German governments regarding possible state participation
in its equity to assist its development program, sold a
Euro-denominated Green perpetual hybrid deal, first callable after
5.25 years.
On 15 July it launched the deal with price guidance of
2.625-2.75% until the initial call. The deal was sized at EUR1
billion and priced at 2.374%. According to the company the deal
"sparks the hybrid market", given "keen interest" that left the
deal 2.5 times oversubscribed.
During the past five years all the company's debt sales have
been in Green format, including a hybrid offering in 2017. In this
case, proceeds will be used for projects in the Netherlands and
Germany to connect offshore wind facilities to the onshore grid and
enhance onshore transmission capacity for renewable energy,
according to TenneT's statement of 16 July.
The Kingdom of Sweden has clarified in a statement that its
debut SEK20 billion Green Bond will have a maturity of 7-10 years.
The sale, slated for August, will set the eventual maturity based
on feedback in late August. Johan Bergström, Acting Head of Funding
at the Kingdom's Debt Office stated that demand "seems to be
strongest" for such maturities, which is "well suited to our
current borrowing plan and overall debt management".
Chinese property-oriented investment company CIFI Holding has
sold an inaugural Green dollar bond. It placed USD300 million of
5.95% 5.25-year debt, gaining peak demand of USD2.4 billion.
Proceeds will repay a maturing syndicated loan. Its Green Bond was
sold under a framework aligned with ICMA's Green Bond Principles
including the involvement of an independent external reviewer.
Two-thirds of demand was from Asian buyers with European interest
covering the remainder of the book.
Italian grid operator Terna has launched a EUR500 million
12-year Green bond, with initial price talk at 125/130 basis points
over mid-swaps.
High yield debt
The European high yield market faced a test this week from
Gamenet, an Italian firm operating betting shops. It is seeking to
raise EUR340 million of senior secured five-year floating rate
bonds, callable after one year, and EUR300 million of five-year
fixed rate debt callable after two years. The offering is slated to
repay bridge facilities incurred by Apollo, a private equity firm,
in purchasing the company, along with two outstanding floating rate
notes from 2018, which both mature in 2023. Sources involved with
the deal suggest that existing holders of floating rate debt could
swap into the new floating rate instrument.
The deal has been pending for some months but has been affected
by the closure of its operations between March and mid-June. It is
now being marketed in improved conditions, with the average yield
on Euro-denominated junk bonds having declined from its late March
peak of almost 9% to around 4.5% on 10 July, and benefits from
reportedly encouraging activity levels since the firm's facilities
reopened.
On 16 July Bloomberg reported that the terms of the issue were
being adjusted "after meeting resistance from investors" over the
financial covenants. The report suggested that investors were
demanding tighter controls on its ability to pay dividends and
other corporate actions.
Melco Resorts, a sub-investment grade rated Hong Kong based firm
operating gaming and leisure resorts in Asia, has sold USD500
million of 5.75% 2028 notes, priced at par. Proceeds will repay an
existing bank facility and be used for general corporate
purposes.
Our take
Braskem's plans for a hybrid sale follow successful completion
of perpetual debt offerings by a growing range of emerging market
borrowers. In late June, Dubai port logistics firm DP World gained
USD3.8 billion of demand for a USD1.5 billion perpetual deal,
priced at 6.125% to initial call. Mexican bank Banorte's AT1 deal
also was well received last week, and Emirates NBD also completed a
perpetual AT1 sale in the same week. Along with Indonesian oil firm
PTT's recent 50-year bond, such offerings all represent
risk-positive indicators for the emerging market asset class,
suggesting that stronger borrowers within the category can gain
relatively attractive funding for very long periods.
One note of caution - running against the generally favorable EM
duration trend - was the 9.5% coupon that El Salvador needed to pay
for its recent 2052 bond sale, but this is likely to reflect its
relatively weak credit and - as highlighted by our country risk
specialist Dr. Kari Prius - its unusually adverse past debt
history, including having come close to technical default on two
occasions.
These included a brief period in 2017 when it was lowered to a
"selective default" rating by S&P after failing to make timely
payment of amounts due in April 2017 when the government was unable
to obtain timely Congressional clearance for the release of payment
amounts due. In the same year, S&P repeated its action of
moving El Salvador to an SD rating after its Congress approved
changes to restructure sovereign debt incurred over domestic
private pension liabilities, with USD91 million of liabilities
facing a five-year extension of maturity (to 30 years), reduced
interest coupons and a grace period for debt service.
Despite this poor record, the country nevertheless managed to
raise USD1 billion for a 32-year term, a significant achievement in
our view for such a weakly-rated credit.
Sharjah's successful entry to the Formosa market is
risk-positive, diversifying the Emirate's investor base and
extending the duration of its debt. Moody's recently rated its
global MTN program Baa2, with stable outlook, citing its
"relatively diversified economy, low external vulnerability risks
and a credible currency peg" as among the factors justifying a
stable rating outlook, noting that "ample funding sources"
contributed to its shock absorption capacity.
Lastly, Gamenet's slow progress with its high-yield bond is
further confirmation of growing investor sensitivity to covenant
protection in the European high yield market. The adjustment of
terms follows similar pushback to Thyssenkrupp's jumbo package,
although this was comfortably oversubscribed after covenants were
improved by its owner. Such increased scrutiny is risk positive in
limiting default risk within the segment and reducing the prospect
of imprudent investments.
Posted 17 July 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit
