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Following the highly successful USD6 billion initial
privatisation of Dubai Electricity and Water Authority in April,
which was sharply increased from 6.5% to 18% of the firm's share
capital after the offering was 35 times subscribed, there has been
another clear success in the region with further potentially
sizeable supply under consideration.
Borouge, a petrochemicals joint venture between Abu Dhabi
National Oil Company and Borealis, announced on 23 May the sale of
roughly 10% of the company, with an offering of 3 billion shares at
AED2.45 (USD0.67) each to raise roughly USD2 billion. Abu Dhabi's
stock market has recorded gains in 2022 and was 52.4% up year on
year as of the launch date, with 17.4% gains in 2022. The issue
closed on 30 May with total demand of USD83.4 billion, according to
a company statement.
Against a background of stock market appreciation, more MENA
equity supply is reportedly being prepared.
Energy media including Oilprice.com have published unconfirmed
reports that Saudi Aramco is exploring the idea of listing and
selling a minority stake in its trading unit, Aramco Trading,
suggesting that this could be for up to 30 percent of the entity,
and claiming that market analysts have suggested this block could
be worth USD30 billion.
Ongoing unconfirmed reports also suggest that a further sale in
Saudi Aramco itself could be considered. A recent Wall Street
Journal article suggested that this could target up to US50 billion
and involve additional secondary listings (on exchanges such as
London, Singapore and elsewhere). Aramco reported impressive first
quarter net income of USD39.47 billion, versus USD21.72 billion in
the equivalent quarter of 2021. Its initial flotation in December
2019 raised USD29.4 billion, through the sale of 3.45 billion
shares at SAR32 each in January 2020. During 2022, Aramco's share
price has risen from SAR 32.2 on 2 January to SAR41.40 on 31
May.
As of 31 May, Saudi Arabia's Tadawul index was recording year
to date gains of 13.5%, and 12 month appreciation of 21.9%.
Marafiq, the Saudi Arabian "Power and Water Utility Company for
Jubail and Yunbu" has appointed banks to prepare the sale of a 30%
stake in the company later in 2022. At present, Saudi Aramco,
SABIC, the Royal Commission for Jubail and Yanbu and the Public
Investment fund each own 24.81%. The sale is forecast to be worth
SAR4.5 billion or USD1.2 billion.
Dubai's Emirates Central Cooling Systems Corporation (Empower)
is also reported to be appointing banks for its future flotation,
similarly slated for 2022. The firm, part owned by Dubai
Electricity and Water Authority, is one of ten government linked
firms identified for flotation in a programme established by
Dubai's deputy ruler, Sheikh Maktoum bin Mohammed last
November.
According to a filing on 27 May, Eletrobras is planning to issue
628 million new shares, bringing the government's holding to below
50%. In parallel, BNDESpar, the private equity unit of state bank
BNDES, plans the secondary sale of 69.8 million shares. A 15%
greenshoe facility will be made available, potentially increasing
the deal by a further 105 million shares. Pricing is projected for
9 June, with trading in the new shares to start on 13 June. Based
on the share price at the time of announcement, the deal -including
the overallocation facility - could be worth around BRL35 billion
(USD7.4 billion), the second largest volume on record for a
Brazilian share sale behind the 2010 offering for Petrobras.
Despite the overhang from the proposed capital increase, the
privatization is viewed positively by the market: the company's
traded share price has risen from BRL32.3 at the start of 2022 to
BRL42.76 on 27 May, the date of announcement. The BOVESPA index
also is in positive territory for 2022, with year-to-date gains of
7.52% as of 31 May, reflecting Brazil's strong natural resource
footprint.
ESG sovereign debt
Austria has made its Green Bond debut, a May 2049 issue sold on
24 May. It placed EUR4 billion (EUR250 million being retained by
the issuer) at mid-swaps plus 22 basis points, three tighter than
opening price guidance, with demand reaching EUR25 billion
according to Reuters sources.
According to Markus Stix, Managing Director at Austria's
Treasury, the deal achieved a "Greenium" - the cost saving from ESG
format - worth 2.5 basis points. He highlighted that this yield
saving had enabled Austria to issue at a yield below Austria's bond
"maturing in 2040, despite…being nine years longer".
Denmark also debuted as a Green bond issuer earlier in 2022 with
a domestic sale, while Greece is suggested as likely to follow in
the second half of 2022.
AFT, the French debt management agency, announced on 24 May the
sale of an innovative syndicated Green inflation-linked bond due in
July 2038. The EUR3 billion issue was launched on 25 May with
demand reaching EUR24 billion and was priced at a real return of
-0.926%, "the lowest level of real rate ever observed" in a
syndicated OAT, according to AFT's statement.
While details are still to be established, Prime Minister Fumio
Kishida stated on 17 May that Japan would need JPY150 trillion in
investment in the next decade to become carbon-neutral, specifying
that this would include issuance of JPY20 trillion (USD157 billion)
of Green Transition JGB debt. More specific plans are to be
developed later this year by a panel on climate transition.
Our Take
Both debt and equity markets have recovered globally in recent
weeks, suggesting that investors are adjusting to an environment of
persisting inflation, higher energy and food prices, and tighter
monetary policy. The improvement does not imply that equity supply
in general now faces a materially more favourable environment: as
of 30 May the Nasdaq and S&P 500 indices were down by 23.4% and
13.3% in 2022, with Euro STOXX 50 11.2% weaker. The Renaissance US
IPO index also has improved recently but still is showing losses of
some 48% for 2022.
Within the global picture, MENA markets have been prominent for
going against the adverse global trend. The DEWA privatization was
highly successful while the Borouge flotation also has enjoyed a
"hot" market response. In turn, this provides a positive background
for further sales in Saudi Arabia and UAE if energy prices remain
high.
Brazil's stock market also has performed relatively well,
benefitting from the country's natural resources. While a large
deal, Eletrobras's planned capital increase previously had been
welcomed by market investors, on the grounds that dilution of the
state's role might improve corporate performance.
Prior to the sale, however, electoral uncertainties, and the
former President Lula's opposition to the sale, appeared to
indicate generate future risks to performance for those investing
now. This was highlighted by the Financial Times on 18 May, when it
stated that Lula had "cautioned prospective buyers against
participating". Given Brazil's strained fiscal position, and the
goal of an incoming Lula-led administration to spend elsewhere, our
Country Risk specialist Carlos Caicedo suggests that he would be
unlikely in practice to seek to reverse the current operation and
restore majority state ownership, with limitations on state
repurchases of the new shares further constraining his policy
options.
A further technical constraint relates to liabilities of Madeira
Energy, which controls the Santo Antonio hydroelectric facility and
is minority-owned by Eletrobras subsidiary Furnas. Eletrobras
previously suggested that resolution of the issue would be needed
for it to proceed with its own capital increase.
Given the deal's sizeable nature, its reception will be
important in determining the appetite for further market sales of
state assets, if the post-electoral political environment makes
this feasible (i.e. if President Bolsonaro were re-elected).
Elsewhere, Austria's Green Bond debut and the French
index-linked green syndication both continue the ongoing expansion
of sovereign ESG issuance in Europe, with Greece projected to
follow later this year. Japan's plans for Green Bond issuance are a
sizeable potential boost to global sovereign Green issuance,
although the USD157 billion equivalent targeted is to be spread
over a decade. By way of comparison, in 2021, the US was the
largest country for Green Bond issuance according to Climate Bonds
Initiative's reports, with USD81.9 billion of new issuance in the
year versus USD50.3 billion in 2020. Its cumulative stock reached
USD304 billion, ahead of China with USD199 billion of outstanding
Green debt by end-2021. A further constraint is the "Green
Transition" label: depending on its scope, this might allow for
investments that fall outside the global standards for Green bonds,
reducing appear for non-domestic ESG investors.
Posted 03 June 2022 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
