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Capital Markets Weekly: Indonesia and Senegal revive sovereign emerging market supply

03 June 2021 Brian Lawson

Spread developments

According to Bloomberg data, US investment-grade rated corporate bond spreads reached an average spread of 84 basis points over US Treasuries (UST) on 28 May, a 14-year low. The report attributed the tightening to improved earnings performance, economic recovery, and low borrowing costs helping companies strengthen their debt profiles. By contrast, a Financial Times report on 1 June using ICE Data materials suggested that high-yield spreads were broadly stable in May, but that this was only the second month in 14 in which they had not tightened. The average junk bond spread (versus UST) ended the month at 3.29%, having reached 3.42% during the month, and having been as low as 3.21% in April, versus a peak margin of almost 10 percentage points in early 2020.

Emerging markets

Indonesia launched a three-tranche dollar sukuk on 2 June, seeking five, 10- and 30-year issuance, with the long-dated tranche in Green format. Initial guidance was set at 1.9%, 3.0%, and 4.0% area, with demand rapidly reaching USD8 billion. The issue tranches were priced at 1.5%, 2.55%, and 3.55%.

Senegal reopened the market for sub-Saharan African debt with a Euro-denominated benchmark deal with a 15-year average life. On 2 June it priced EUR775 million at 5.375%, versus price guidance initially at 5.875%-6%. A Global Capital report on 1 June had suggested that Cameroon, Ghana, Kenya, and Senegal all were candidates for international debt issuance within the near future, with Nigeria also suggested as a likely entrant.

Mexican stores group Grupo Axo has arranged its market debut, ending the recent lull in Latin American issuance. It placed USD325 million of five-year senior debt at 5.75%, "significantly improving" the firm's debt profile. Cemex is also in the market, preparing a dollar perpetual sale with the bonds first callable after 5.25 years.

Petrobras continued the improving issuance activity in the Latin American region with a USD1.5 billion 30-year sale. The deal was priced to yield 5.75% versus initial guidance at 6.25% area. The issue is linked to a tender for 13 outstanding issues which mature between 2024 and 2050.

Within Asian supply, SMC Global Power, part of the Philippines San Miguel conglomerate, sold USD600 million of perpetual debt, priced at 5.45% to the initial 5.5-year call (versus guidance of 5.875% area). Demand reached USD2.1 billion. The issue will fund its development of the Batangas combined cycle power plant alongside general corporate purposes.

Indofood CBP Sukses Makmur, an Indonesian food firm, undertook its market debut with USD1.15 of 10-year debt at 3.398%, priced 180 basis points over US Treasuries and 45 basis points through initial price talk. Demand for the tranche reached USD7.4 billion. It also sold USD600 million of 30-year debt at 4.475%, a spread of 245 basis points (versus initial price talk of a 280-basis point spread). Demand for this tranche reached USD4 billion. Proceeds will refinance bridge loan facilities for the acquisition of Pinehill, a manufacturing partner.

Reuters reports claim that Qatar Petroleum has appointed banks for a sizeable debut financing within June. The report claims that it might issue up to USD10 billion in efforts to boost its operating capacity. Prior issuance has been conducted privately. The company declined to comment, and no further details are currently available.

Media reports also suggest that Saudi Aramco is considering debt issuance, potentially for up to USD5 billion between domestic and international markets. The potential borrowing reportedly is linked to the need to pay dividends, largely to the Saudi state.


Several ESG borrowers debuted in the ESG segment on 1 June:

EWE, an energy and telecommunications firm based in Oldenburg, Germany, sold a debut EUR500 million Green Bond, with a seven-year term and 0.25% coupon. In its statement, the company flagged its strategic goal of becoming climate neutral by 2035. Funds will be applied to eligible projects "in the areas of electricity distribution networks, fiber optic networks, renewable energy generation, hydrogen infrastructure, electricity storage and charging infrastructure".

On the same day, RWE placed EUR500 million of Green debt, it first such issue, for ten years with a 0.625% coupon.

Worley, an Australian engineering firm, placed a EUR500 million debut sale of five-year sustainability linked debt with a 0.87% coupon. Its program establishes a single key performance indicator, that of reducing "Scope 1 and 2" emissions by 50% versus a 2020 baseline by 2025.

Belfius Bank sold senior non-preferred debt for seven years. The Belgian bank gained EUR2 billion of demand from 161 investors for a EUR500 million seven-year deal, priced with a 0.125% coupon at 50 basis points over mid-swaps, the tight end of its indicated range. German and Austrian buyers led demand, taking 41% of allocations with 20% sold in Benelux. 60% was allocated to fund managers with 20% bought by banks. Belfius announced its Green Framework on 26 May, setting out plans for issuance, with the new issue described by IFR as Green (this is not confirmed in the bank's statement, although this does claim the transaction "perfectly fits in the funding diversification and optimization strategy" of the bank).

Additionally, Swedbank arranged its first Green Bond denominated in sterling. It marketed a 6.5-year (5.5-year non-call) bond at 115-120 basis points over comparable gilts, rapidly gaining demand of GBP500 million.

The UK Debt Management Office has announced its debut Green Bond will be sold in September after August consultations over the choice of maturity. Prior media reports suggest that a ten-year reference term has been widely favored so far, although some market makers have preferred a long-duration bond given the structural domestic appetite for long-dated instruments (from pension funds and life insurance companies on actuarial grounds).

Other debt

Toronto Dominion added to recent bank supply with a USD3 billion three-part offering on 1 June. It was followed by Citigroup, which sold USD3.15 billion on 2 June of six-year (non-call five-year) debt, with USD2.75 billion on a fixed rate basis at 1.462%, 67 basis points over comparable US treasuries and 18 basis points inside guidance. On the same day, Société Générale placed USD2.5 billion of six-year (non-call five year) debt at 1.792%, 100 basis points over Treasuries and 27.5 basis points through initial guidance. It also sold USD1.25 billion of 11 n/c 10-year debt at 2.889%, a 130 basis point spread and 30 basis points inside initial price talk.

Vodafone arranged a three-part dollar-denominated hybrid deal. The offering matures after 60 years, with the tranches first callable after 5.25, 10, and 30 years, with pricing guidance to first call of 3.875%, 4.5%, and 5.5% area. The 30-year period to first call is unusual, indicating the appetite for longer duration in return for improved yield.

Our take

The new low in US corporate bond spreads is a positive indicator of receptive market conditions, but also reflects changing fundamentals. With US vaccination progressing rapidly, and earnings figures looking generally positive, the financial condition of the corporate sector looks likely to improve: a further positive factor in this regard has been the ability of many firms to lock in long-term liabilities at historically low rates, in multiple cases replacing more expensive prior debt. With the US government seeking to expand its spending substantially, another factor encouraging narrower spreads may be the potential increase in the supply of US Treasury bonds relative to other instruments.

The reopening of debt issuance by Latin American and sub-Saharan issuers is a positive sign of continuing risk appetite for emerging market debt. The degree of spread tightening versus initial guidance was impressive for both Senegal and Indonesia. Grupo Axo's deal ended a market hiatus that had lasted more than two weeks without any new Latin American international corporate sales. Cemex's confidence in seeking perpetual debt reinforces this perspective, as does Indonesia's rapid building of a sizeable order book and Senegal's long maturity.

While continuing a flow of deals in recent weeks, this week's new supply from Vodafone among others further confirms that the "duration bid" - the search for higher yield by purchasing long-dated instruments - remains firm as well.

Posted 03 June 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence


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