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According to Bank of America data, investment grade debt
issuance reached a record EUR90 billion in the Euro-denominated
sector last week, along with USD69 billion in dollars, the
second-highest volume on record. Activity has remained high this
week.
Emerging markets
Mexico followed its heavily-oversubscribed dollar sale last week
with a successful Euro-denominated 10-year benchmark and a EUR500
million tap of its outstanding 2039 issue.
It raised EUR1.25 billion of 10-year notes at 1.241%, with the
2039 tap sold at a 2% yield, 96 basis points below its yield when
the issue originally was sold in April 2019.
The package was 3.8 times covered, with demand of EUR6.6
billion from over 350 investors.
The 10-year tranche provides Mexico with funding at a record
low for the country in Euros, according to the Treasury Ministry's
statement.
EUR1 billion will be dedicated to the early redemption of a
2.375% bond maturing in April 2021, smoothing and extending its
debt profile.
Together with its dollar issuance in the prior week, Mexico has
now covered roughly 80% of its sovereign external funding
requirement for 2020.
Treasury Sub-secretary Gabriel Yorio flagged in Mexican media
that the country's debt to GDP ratio improved in 2019 to 44.7% from
44.9% in 2019.
Brazilian healthcare firm Rede D'Or increased a ten-year dollar
sale by USD100 million to USD850 million.
The issue was priced at 4.5%, versus initial price talk of
4.875%.
Proceeds will repay existing debt and fund new
investments.
Philippine conglomerate Aboitiz Equity Ventures, which is active
in power, banking and agriculture, has completed a rare corporate
sale from the country.
Its debut issue raised USD400 million at 4.2%, versus initial
price talk of 4.5%, with demand exceeding USD1 billion.
The issue is to pay for a 2019 acquisition and further overseas
assets.
Other debt
Sovereign supply this week has been very sizeable. It includes a
10-year EUR10 billion syndicated benchmark for Spain and a EUR1
billion 10-year deal for Cyprus, along with a EUR750 million
20-year tranche for the same borrower. These were followed by Italy
with 30-year debt and Belgium with a 10-year syndicated
benchmark.
Spain attracted a new record EUR53 billion of demand: a similar
benchmark 10-year deal on 22 January 2019 gained its prior record
of EUR46.5 billion.
The deal was priced at 32 basis points over mid-swaps, three
basis points inside initial guidance.
On a gross basis, Spain plans to issue EUR196.5 billion in
debt, versus EUR192.8 billion raised in 2019.
Cyprus has estimated its borrowing needs for 2020 at EUR2-2.25
billion.
Cyprus projects that roughly 80% of its funding will be from
syndicated issuance, with the remainder coming from bills and
retail debt instruments.
It priced the two tranches at 0.73% and 1.33% respectively,
with demand of EUR13 billion according to Finance Minister
Constantinos Petrides.
It plans to use some of the proceeds for early repayment of its
IMF loan which would reduce its debt service costs.
Italy has launched a syndicated 30-year deal, awarding the
mandate on 14 January: on the same day it sold EUR3 billion, 2.5
billion and 1.25 billion of three, seven and 20-year bonds through
regular auction, the maximum slated amounts. The auctions cleared
at 0.18%, 0.94% and 2.14% respectively.
Belgium has mandated banks for a 10-year syndicated OLO.
Also, Canada sold a five-year dollar benchmark and KFW
three-year dollar funding.
On 13 January, the European Financial Stability Facility gained
a record EUR12 billion in demand (excluding lead manager interest)
for a EUR3 billion 30-year benchmark priced at 0.756%. 49% was
allocated to Eurozone buyers, with 39% taken by UK and Swiss
investors. 48% was bought by fund managers, while pension and
insurance investors took 24%.
Meanwhile, EIB has attracted EUR1.5 billion of demand for a
EUR1 billion €STR-linked FRN, further cementing its migration to
the new safe rate away from Euribor.
In the financial sector Italy's UBI Banca sold a EUR400 million
Additional Tier 1 issue, priced at 5.875% to first call, versus
initial guidance of 6.5%.
Demand exceeded an impressive EUR5.5 billion.
This encouraged BPM (Banca Populare di Milano) also to mandate
banks for a EUR350 AT1 deal, which was grown to EUR400
million.
The deal was priced at 6.125%, versus initial guidance of "6%
high" and subsequently at 6.25%, with demand exceeding EUR4.5
billion.
Troubled MPS also is in the market, with a EUR400 million Tier
2 deal with initial guidance at low 8%.
ESG debt
The UK's National Grid gained EUR3.2 billion of demand for its
Eur500 million Green Bond debut.
Indian asset-financing firm Shriram Transport Company placed the
first "social" bond from India, issued under the ICMA social bond
principles.
The USD500 million issue attracted demand of USD2.2 billion, of
which 50% was from US buyers and 37% from Asia: asset managers
dominated the order book with 87%.
The deal was priced at 5.1%, 27.5 basis points inside initial
guidance.
Proceeds will target the generation of employment with a focus
on SME and micro-finance lending.
According to Cristina Casalinho, CEO of Portugal's Treasury and
Debt Management Agency IGCP, it is "inevitable" that the country
will look at issuance of Green debt. However, the decision "very
much comes from the government", with timing still unclear.
Equity
Saudi Aramco's IPO has been increased to USD29.4 billion through
the exercise of its green-shoe option.
On 12 January, 450 million extra shares were sold, on top of
the initial 3 billion floated initially: the company has now
floated 1.7% of its capital.
According to International Financing Review, BNDES is likely to
launch the sale of its USD5.9 billion stake in Petrobras early next
month.
On 3 January, Petrobras undertook an SEC filing for an
international and domestic offering of BNDES' 734.2 million
shares.
It owns 9.9% of the company's voting capital: the firm is
already listed both domestically and on the NYSE.
A similar but smaller stake held by state-owned bank Caixa was
placed last June, raising USD1.9 billion.
The Brazilian government directly owns a further 50.3%, over
which President Bolsonaro has expressed "sympathy" towards the
suggestion this might also be subject to eventual sale.
However, the latter has yet to be confirmed and full
privatization would face considerably more political
opposition.
BNDES CEO Joaquim Levy had stated in late-March 2019 that "to
hold a Petrobras stake does not add value to the bank", which is
undertaking a BRS117 billion divestment program freeing resources
for infrastructure lending.
Indian mobile firm Bharti Airtel raised the equivalent of USD3
billion from a qualified institutional share placement and the sale
of convertible bonds. Its issuance covers a similar amount due in
airwave and license fees following an adverse court ruling by
India's Supreme Court last October affecting the sector.
Implications and outlook
This has been another very busy week, again reflecting
traditional seasonal factors.
In debt markets, Mexico has made a very effective and impressive
start to the year, shrugging off past concerns that its credit
standing could be damaged by the "AMLO" government.
With 80% of its 2020 funding needs already covered, and having
made a start on pre-financing 2021 redemptions, it appears
favorably positioned.
Similarly, Spain's record demand for its 10-year benchmark is a
clearly-positive indicator regarding the formation of its coalition
government, despite the involvement of Podemos.
The proposed BNDES sale of Petrobras shares is a further
indicator of the Bolsonaro administration's desire to reduce the
role of the state in its economy but is a long way short of the
government seeking to divest its own direct holdings. BNDES appears
to be bolstering its capital by the sale to refocus resources
towards funding new infrastructure development, very much in line
with the natural functions of a state development bank.
Lastly, the full exercise of Saudi Aramco's green-shoe facility
is a positive indicator but is the natural technical consequence of
its share price performance.
Since the shares started trading, they have remained
consistently above the USD32 issue price, making it necessary for
the sponsoring banks to use the green-shoe facility to cover their
initial overallocation.
Posted 16 January 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit
