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In a busy week ahead of the 4 July US holiday, the standout deal
was a USD12 billion package for Qatar Petroleum, the largest
emerging market deal in 2021, alongside sovereign packages
forBrazil, Mongolia and the Philippines, alongside a USD8 billion
acquisition financing by Salesforce and around USD7 billion for
Softbank.
Emerging markets
Qatar Petroleum sold a jumbo four-tranche dollar package with
five, ten 20 with initial price talk set at 80, 120, 145 and 155
basis point margins over comparable US treasuries (T). It sold an
impressive USD12.5 billion, versus an expected USD10 billion, the
largest offering from the MENA region since Saudi Arabia sold the
same amount in September 2017. According to Reuters all four
tranches were tightened by 30 basis points after demand exceeded
USD41 billion. The package comprises USD1.5 billion for five years
at T+50 basis points, USD3.5 billion for 10 years at T+90 basis
points, USD3.5 billion for 20 years at 3.15% and USD4 billion for
30 years targeting Taiwanese buyers at 3.5%.
The Philippines sold USD3 billion of 10.5 and 25-year dollar
debt, with USD2.25 billion in the longer tranche. Initial price
guidance was set at 90 basis points above comparable US Treasuries
and 3.55% for the long-dated tranche with final pricing set at
2.08%, a 60-basis point margin, and 3.25%.
Mongolia also was in the market with dollar debt, offering six
and 10-year tranches at 4.25% and 5.25% area guidance. It placed an
upsized USD1 billion with both tranches pricing way below guidance
at 3.75% and 4.7%. Proceeds will be used in a tender for existing
5.125% 2022 and 5.625% 2023 bonds. IFR reported that the package
has achieved the country's lowest cost and longest duration to
date.
Brazil completed its first international sale this year on 29
June, placing USD2.25 billion. It issued USD1.5 billion of ten-year
debt at 3.875% and tapped its 4.75% 2050 deal with USD750 million,
priced at 4.925%. Demand exceeded USD7.5 billion. In a statement
the issuer described the purposes of issuance to be promoting the
liquidity of the country's dollar curve, providing a reference for
Brazilian corporate issuance and "anticipating financing of
maturities" of existing debt.
Brazilian financial services firm XP Inc raised USD750 million
in a debut issue, priced at 3.5% versus initial guidance of mid to
high-3% area.
Saudi Islamic bank Al Jariza placed its USD500 million
Additional Tier 1 perpetual non-call five-year issue at 3.95%
versus price talk of 4.25%-4.375% area.
Turkish polyester manufacturer SASA Polyester Sanayi has become
the first convertible bond issuer from the country. It placed
Eur200 million of five-year 3.25% bonds convertible into equity at
a 27.5% to the firm's average share price between 24 June and 14
July.
ESG
Chinese property developer Shui On Land sold USD400 million of
five-year (non-call four-year) bonds at 5.5% versus 5.75% area
guidance. The deal is reportedly the first sustainability-linked
transaction by a non-financial Chinese firm. Demand exceeded USD1.5
billion.
Canadian pipeline firm Enbridge Inc. arranged a debut
sustainability-linked 12-year deal alongside a conventional 30-year
bond. The USD1 billion sustainability-linked tranche was priced at
2.5%. Unsurprisingly, given its sector, the issuance was subject to
criticism from environmental groups: according to Canada's
Financial Post it was the first sustainability-linked deal by a
North American pipeline firm Its VP of Treasury Max Chan claimed
the firm had achieved at least five basis points "Greenium", cost
savings versus conventional debt.
Assicurazioni Generali also has arranged its first deal under a
new sustainability bond framework. It placed EUR500 million of
11-year Tier 2 debt at 1.713%, with the deal gaining EUR2.2 billion
in demand from roughly 180 investors.
After UBS's debut last week, UniCredit debuted in the Green Bond
market, gaining over EUR3.25 billion peak demand for its EUR1
billion eight-year senior preferred issue. The final book was
EUR2.7 billion with the deal priced at 90 basis points over US
treasuries, 30 basis points inside guidance (at 0.807%).
Investment-grade rated Suzano Austria, owned by the Brazilian paper
firm, sold USD1 billion of 10-year sustainability linked bonds at
3.28%, some 20 basis points inside guidance. Proceeds will repay
existing export pre-payment agreements and the early call of an
outstanding 5.25% 2024 issue.
LG Chem gained an impressive USD8.5 billion in demand from a
USD1 billion sale of five and 10 year Green Bonds at 1.48% (UST+60
basis points, 40 bps inside guidance) and 2.38% (UST+90 basis
points, also 40 bps inside price talk).
Other debt
The EU returned to market with its second NGEU facility
financing placing EUR15 billion of five and 30-year bonds. The sale
on 29 June attracted EUR171 billion. The EU placed EUR9 billion of
0% five-year bonds priced at -0.335%, 11 basis points tighter than
mid-swaps and 22 basis points above the corresponding Bund,
attracting EUR88 billion for the tranche. It also sold EUR6 billion
of 30-year debt at 0.732%, 22 basis points over mid-swaps (39.9 bps
over comparable Bunds): this attracted EUR83 billion in
interest.
Italy returned to the market on 24 June with an unusual
syndication of floating rate debt. It placed EUR6 billion of
seven-year debt yielding 69 basis points over Euribor. The deal is
Italy's first syndicated FRN since 2010. Demand exceeded EUR12
billion.
Salesforce.com, a US cloud software company, attracted over
USD31 billion in demand for a six-tranche USD8 billion package to
help fund its USD27.7 billion of Slack, a corporate communications
firm. The offering spanned three, seven, ten, 20, 30 and 40-year
debt priced at margins between 18 and 95 basis points over US
treasuries, 20-22 basis points inside initial guidance. The
seven-year bond was in sustainability format with the USD1 billion
tranche attracting USD4.7 billion.
Softbank also issued a sizeable transaction, a package worth
over USD7 billion comprising four tranches each in USD and Euros
(USD3.85 billion and EUR2.95 billion) with maturities from three to
12 years. The package gained total demand of over USD16
billion.
Cellnex arranged a debut US dollar deal, placing USD600 million
for 20 years. The issue has a 3.875% coupon and 98.724% issue
price: the issue is reported to have been swapped into Euros at
2.5%.
Unicredit sold a EUR750 million perpetual non-call 7 year
additional Tier 1 deal, pricing at 4.45% versus 4.875% guidance
with demand of EUR1.75 billion.
Air France-KLM sold EUR300 million of three-year debt at 3.125%,
versus 3.75% area price talk, and EUR500 million for five years at
4%, 50 basis points inside initial guidance. Combined demand
exceeded EUR4 billion.
Equity
Renaissance Capital's Q2 review reported that the US IPO market
achieved a highly active second quarter with 113 IPOs raising
USD39.9 billion, a record level. The report also noted that June
had provided the busiest month since August 2000. Healthcare was
the most active segment, followed by technology, which had its
busiest quarter in two decades. In Q1 2021, 100 companies had
raised USD39.2 billion: the corresponding figures for Q2 2020 were
39 deals raising USD15.1 billion. By contrast, SPAC issuance is
reported to have declined 83%.
Implications and outlook
Coming just ahead of the 4 July US holiday, this week's issuance
calendar has been impressive, with Qatar Petroleum and all three
emerging market sovereign issuers gaining a strong reception.
Brazil's debt spreads have been stable in recent months and
relatively unaffected by its ongoing struggle with the COVID-19
pandemic. The upsizing of Mongolia's issue also was a positive
indicator of strong prevailing demand.
The EU's latest order book was substantially greater than the
first for its NGEU facility earlier this month but also was well
short of the EUR233 billion achieved for the first SURE sale in
late October 2020. Overall, while sounding impressive, such vast
excess demand looks artificial, reflecting investor order inflation
to obtain better allocations. Nevertheless, the deal's reception is
a further positive indicator of investor demand, coming despite
growing voices within the ECB suggesting that it should start to
consider when to reduce its asset purchases.
While this week's supply has been sizeable, some reduction is
likely during July and August to reflect seasonal factors, as this
is the traditional "holiday season" in Europe and the USA. However,
in recent years, such seasonality has been less marked.
Posted 02 July 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit