Capital Markets Weekly: Emerging market and long-duration issuance reinforces market receptivity

The successful completion of a significantly oversubscribed offering for Oman, and Benin's sale of EUR1 billion of 11 and 30-year debt both represented positive indicators of improving issuance conditions for emerging market borrowers. Turkey and Bahrain also are marketing dollar debt in response to the receptive market conditions. Alongside this, Chile has issued its longest debt on record in both dollars and Euros (in Green and Social bond format), while the UK and France both have enjoyed impressive long and ultra-long syndicated successes.

Emerging markets

Media have confirmed that Oman raised USD3.25 billion from its bond offering late last week. It placed USD1.75 billion of 10-year debt at 6.25%, USD1 billion of 30-year bonds at 7.25%, and tapped its 2025 bond with USD500 million at 4.45%. Reuters reports that it had opened the USD750 million 2025 tap at 4.875% guidance, with indicated pricing of 6.625% and 7.625%-7.75% on the longer new tranches. Reuters reports also had suggested that Oman initially sought to raise USD2-3 billion.

The deal represents Oman's third financing in international bond markets since October, when it sold 2027 and 2032 debt at 6.75% and 7.375% respectively. It tapped these issues with a combined USD500 million in late November at 6.3% and 6.9%, with over USD3 billion in demand for the tap, versus USD3.8 billion achieved for the original October sale. According Global Capital website source input, demand for the latest sale reached an impressive USD15 billion.

Turkey has sold a dollar transaction with record demand, continuing its custom of undertaking a January borrowing. On 19 January, it opened books on 5 and long 10-year issues with price guidance of 5.25% and 6.25% area respectively. It priced USD1.75 billion for each maturity at 4.9% and 5.95% respectively, implying a new issue concession of 10-15 basis points to Turkey's outstanding curve. Total demand reached an impressive USD15 billion. UK and US investors led demand, taking 35% and 33% of the allocations respectively.

On the same day Bahrain started marketing dollar bonds, seeking USD2 billion of seven, 12 and 30-year debt, with indicated pricing of 4.875%, 5.75% and 6.75% respectively. It placed USD500 million for seven years at 4.25%, USD1 billion for 12 years at 5.25% and USD500 million for 30 years at 6.25%. Demand reportedly reached USD10.15 billion.

Improving sentiment towards the region also was shown by a Tier 2 subordinated bond sale by Turkish bank Yapi Kredi. The bank opened books on a 10-year offering at 8.5% area, tightening pricing sharply after gaining over USD1.25 billion in demand. It priced USD500 million at 7.875%.

The Republic of Benin announced on 15 January that it placed EUR1 billion of debt, this year's first Sub-Saharan African issue. This comprises EUR700 million with a final maturity of 11 years, and EUR300 million for 31 years, priced at 4.8% and 6.8% respectively. The two tranches attracted EUR1.9 billion and EUR1.2 billion. According to Ecofin agency, the proceeds will permit the early redemption of 65% of Benin's only prior issue, its 5.75% 2024-26 issue.

According to Global Capital, South Africa and Nigeria are likely to add to Sub-Saharan supply in the coming months.

Late last week Mexico sold EUR1.8 billion of 12 and 30-year debt, with the 10-year portion priced at 1.45%, 180 basis points over mid-swaps, versus guidance of 190 basis points. The transaction, linked to a liability management exercise, simplifies and extends Mexico's debt structure, concentrating its Euro-denominated liabilities from six down to two distinct maturities.

ESG

The Republic of Chile arranged USD4.25 billion equivalent of sustainability-linked debt on 19 January in a four-tranche operation:

• It placed a EUR400 million tap of its July 2031 Green Bond, and a new EUR1.25 billion 2051 social bond.
• The two tranches offered initial guidance of mid-swaps plus 80 and 140 basis points respectively.
• Demand reached EUR4.13 billion, 2.5 times the amount on offer, with ESG-dedicated funds providing 48.5% of the allocated demand.
• The 2031 reopening was set at 0.399%, 60 basis points over mid-swaps, with a zero premium to the outstanding issue. The offer yield is the lowest to date achieved by Chile in Euros.
• The 2051 social bond was priced at 1.298%, 125 basis points over mid-swaps, again with an estimated zero premium. It is Chile's longest dated sale in Euros to date and "contributes to the development of new benchmarks" according to the Treasury Ministry's statement.
• On the same day Chile arranged USD1.5 billion of 40-year social debt at 3.116%, pricing at 127 basis points over US treasuries, versus guidance of 155 basis points and added USD750 million to its existing 2.55% 2032 Green bonds at 1.962%, 87 basis points over US Treasuries.
• Dollar demand reached USD7.2 billion. Both dollar bonds are described as having priced three basis points through Chile's outstanding curve. The 2032 sale represents the lowest cost on record for Chilean debt sales at such maturities, while the 2061 bond is the country's longest-duration dollar sale.
• The Treasury statement notes that Chile has now raised USD12.6 billion of ESG debt since 2019. Green bond proceeds will fund additional energy efficiency projects, new energy-efficient buildings and electric buses, alongside existing Green projects.
• For 2021, the Treasury indicated a USD19 billion funding need, of which USD6 billion are targeted from international markets - implying that two-thirds of Chile's non-domestic funding needs have already been met.

According to César Arias, Head of Public Credit for Colombia, the country is planning its debut Green Bond issue in July 2021 and is also preparing the sale of social bonds. The debut deal will be undertaken in local currency.

Other debt

On 19 January, two European sovereign borrowers obtained long-dated funding with a strongly-positive reception:

The United Kingdom's Debt Management Office syndicated a new 25-year gilt, with guidance of 2.5-3 basis points over its outstanding 3.5% 2045 issue. The deal was priced at 0.8671%, at the bottom of its range. The dealsize was set at a "larger than originally planned" GBP6.5 billion, with the offering attracting demand of GBP56.6 billion from 152 accounts. UK buyers represented 92% of allocations (reflecting "very strong interest" domestic institutional demand "from our core pension fund and asset manager investor base".

France completed its first 50-year deal since 2016. It raised a record EUR7 billion at 7 basis points over its May 2066 bond, versus initial guidance of a nine basis point differential, pricing the deal at a "historically low 0.593%". Demand reached around EUR75 billion with 430 investors allocated bonds. Asset managers - with 35% - and insurers - with 26%, were most prominent, with pension funds and banks taking 18% and 12%. Geographically, Germany (30%), France (24%) and the UK (19%) dominated the order book.

Additionally, Total was prominent in a quiet market on 18 January (Martin Luther King Day holiday in the USA) with a EUR3 billion hybrid bond sale. It placed EUR1.5 billion each of perpetual debt first callable after seven and 12 years, wth coupons to first call of 1.625% and 2.125%, versus guidance of 1.875-2% and 2.375%-2.5%. The deal was undertaken despite recent widening in the hybrid bond segment. Proceeds will be used to finance the firm's development strategy, with Total's statement highlighting the EUR1.7 billion outlay to purchase a 20% stake in Adani Green Energy Limited.

Nippon Life also has benefitted from the strong demand for long-duration instruments, raising USD1.6 billion of 2051 bonds with a 2.75% coupon.

Our take

The demand levels shown for Oman's latest debt sale appear a strong indicator of improving sentiment towards its credit. This is further shown by the price performance of its outstanding debt. Using data from Frankfurt Stock Exchange, its 6% 2029 bond appreciated in secondary trading from 91.44% on 1 November to peak at 103.56% on 10 January before easing during the new sale. Its success, along with that of Turkey and Bahrain, is a clearly positive development, with Turkey's record USD15 billion order book further confirming the improvement in sentiment to both the country and region.

Chile's achievement of its longest maturities on record, along with new pricing lows for intermediate-duration debt in both dollars and Euros, is a further indicator of healthy wider demand levels, as is Benin's extension of its debt schedule alongside new funding. Chile already has covered two-thirds of its 2021 international needs in ESG format, showing its growing focus on such instruments.

The parallel successes by the UK - in sterling - and France - in Euros with long-dated instruments reinforces the trend towards maturity extension at attractive pricing, also indicated early this year by North Rhein Westphalia's 100-year bond sale.

Posted 21 January 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence