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Italy has achieved its first negative-yield term bond sale. On
13 October it placed EUR3.75 billion of January 2024 BTPs at
-0.14%, with demand of EUR5.244 billion. It had offered
EUR3.25-3.75 billion at the maturity.
It also sold EUR2.25 billion of seven-year debt at 0.34%, with
EUR3.95 billion of interest, alongside EUR1.5 billion of September
2050 debt at 1.48%. Italy's 10-year bond traded to a new low of
0.63%, while Greece's 10-year yield reached 0.77%, also an all-time
low.
Underlying this improvement is the growing cumulative stimulus
under the European Central Bank's PEPP facility, which purchased
EUR126.77 billion of public sector securities during August and
September. EUR95.2 billion of Italian government debt was held
under the programme at end-September, with EUR21.8 billion net
purchases in the latest two-month period.
Slovenia launched a 30-year bond on 13 October alongside the
repurchase of outstanding debt issues maturing in January and April
2021. It priced EUR1 billion at 0.4875%, with final books nearly
eight times covered. It also announced repurchase of EUR172.98
million between the two deals at -0.5% yield. ECB holdings of
Slovenian government debt under PEPP stood at EUR2.48 billion at
end-September, with EUR585 million purchased in the preceding
two-month period.
Emerging markets
China returned to the dollar bond market with a USD6 billion
sale of three, five, 10 and 30-year bonds, gaining some USD30
billion in demand. The tranches were priced with coupons of 0.4%,
0.55%, 1.2% and 2.25% respectively.
Gazprom sold dollar and Euro-denominated perpetual hybrid deals
on 13 October, with guidance of low 5% in dollars and 4.375-4.5% in
Euros. It priced USD1.4 billion at 4.6% and EUR1 billion at 3.9% to
the initial five-year calls.
Petrobras tapped its outstanding 5.6% 2031 issue with USD1
billion, priced at 4.4% versus initial price talk of 4.6%, with
demand reportedly having reached USD3.5 billion. In parallel, it
will repurchase up to USD2 billion of outstanding debt.
Commercial Bank of Dubai issued USD600 million of AT1 debt,
priced at 6% to the initial six-year call versus guidance of
6.375%, with demand of USD1.2 billion.
Regional media sources claim the UAE is likely to issue its
first federal bonds in late 2020 or early 2021. In November 2019,
Younis Haji al Khoori, undersecretary of the UAE Finance Ministry,
had suggested that a sovereign level sale was likely in 2020, but
with the proceeds "not used to fund the budget, except in certain
capital projects". Abu Dhabi, Dubai and Sharjah have undertaken
stand-alone issuance this year. The National Public Debt Law,
permitting pooled issuance, was approved in October 2018.
ESG
Enel, the corporate pioneer of sustainability-linked debt, sold
the first such deal denominated in sterling. It raised around GBP3
billion of demand for its GBP500 million seven-year deal, priced at
1.038%. Enel claimed 15 basis points cost-reduction versus
conventional funding. The issue contains a Sustainability
Performance Target of achieving 60 percent of its installed
capacity from renewable sources by end-2022, without which a
25-basis point penalty is payable. Enel also reported swapping the
proceeds into Euros with both counterparties providing "specific
and ambitious" SPT-linked goals and financial consequences.
Banking sources suggest that the EU's first SURE (Support to
mitigate Unemployment Risks in an Emergency) bond could be launched
next week. Proposals were requested for submission on 14 October.
Market sources suggest a 10 or 20-year benchmark of at least EUR5
billion as likely.
High-yield debt
Jaguar Land Rover sold USD700 million of five-year debt,
upsizing its deal by USD200 million, but at a coupon of 7.75%, its
highest bond cost to date. The deal was priced on 9 October after a
two-day sale period.
Rolls Royce sought at least GBP1 billion of 2026 and 2027 debt
denominated in USD, Euros or sterling, alongside its rights issue.
Latest reports suggest the deal will be sized at GBP2 billion and
priced at 6.25% for the dollar and sterling portions, and at
5-5.25% in Euros.
Other debt
French environmental services group Veolia reportedly is
planning perpetual issuance in Euros. It is suggested to be
considering tranches callable after 5.5 and 8.5 years.
La Mondiale attracted an impressive EUR5.2 billion of demand for
a EUR500 million 5.5-year Tier 3 deal, a form of subordinated debt
to support trading activity, tightening pricing by 55 basis points
versus guidance.
Equity
Kazakh fintech firm Kaspi increased its London-based IPO and
priced at the top of the range. It raised USD870 million from the
secondary sale of its global depository receipts. Trading started
on 15 October with the shares opening at an 18% premium.
The offering of 25.76 million GDRs (each GDR equates to one
share) represented 13.4% of the firm's capital and is entirely a
sale by existing shareholders. A greenshoe feature could increase
the deal by 3.86 million shares.
On 9 October, Aeroflot Group announced that it had raised at
least RUB80 billion (USD1 billion) from a capital increase,
launched on 2 October, with the final deal amount still to be
announced (on 26 October). Aeroflot announced that it had raised
RUB39.1 billion from institutional investors, of which RUB9.1
billion was from the Russian Federation. The latter also subscribed
RUB40.1 billion through the exercise of its pre-emption rights.
Its sale followed Sovcomflot's IPO, the first flotation of a
state-owned firm since 2013. The shipping company, which
specializes in hydrocarbon distribution, had its shares priced at
RUB105 each, versus guidance of 105-117 rubles, and started trading
on 7 October at a discount. The sale lowered the government holding
to 82.8%, raising roughly USD550 million in privatization
proceeds.
Brazilian supermarket group Grupo Mateus raised BRL4.6 billion
(USD832 million) from its IPO. The deal is the largest IPO in
Brazil in 2020 but was priced at the low end of its indicated
range. Pre-greenshoe, according to its filing, the company sold
339.1 million new shares and 58.1 million shares placed by existing
shareholders.
Also in Brazil, Natura raised BRL5.6 billion (USD1.02 billion)
in a follow-on sale. The company raised 121 million shares to help
fund its purchase of Avon.
In the US, the Renaissance US IPO Index rose 6.1% in the week to
9 October, leaving it 79.6% higher in 2020 and up 157% from its
March low. Its continued outperformance relative to the S+P500
index reflects the heavy weighting of technology and healthcare
companies in the flotation calendar.
In the last week, seven US IPOs were completed, mainly from the
healthcare sector, alongside 10 SPACs: for the current week, after
the Columbus Day holiday, nine US IPO deals are slated worth USD2
billion.
Polish e-commerce firm Allegro started trading on 12 October,
peaking at PLN71 per share versus its IPO level of PLN43. Its
success is a clear boost to the Polish stock market, where new
listings have dropped steadily since 2016: several more firms are
reportedly considering IPOs within 2020.
Our take
Italy's first negative yield 3-year auction and new lows
elsewhere across its yield curve show the cumulative effect of the
ECB's PEPP, rather than any new positive developments regarding
fiscal sustainability or the development of the COVID-19 pandemic.
Given the adverse trends in its debt stock, Italy's success in
raising three-year funds at negative cost is a clearly-positive
indicator for its debt sustainability, and of the strength of
underlying demand.
Slovenia's long-dated success, both in terms of the low rate
paid and sizeable order book, and riskier securities such as
perpetual debt for Gazprom and upsized UK junk bonds for Jaguar and
Rolls Royce, all represent further positive indicators of
continuing risk appetite.
Issuance by the UAE - rather than member emirates - has been
under discussion for the last two years. One benefit would be to
reduce borrowing costs for smaller emirates, or those facing more
difficulty in gaining market access. Ralf Wiegert, Regional Head of
our Economics team, describes the move as a "step forward for the
smaller Emirates…and a vote of trust in the stability of the UAE",
assuming successful completion of the planned transaction. We
currently assess that such an issue would be well received.
While stock market conditions are mixed, the sizeable recent
equity supply in Kazakhstan, Brazil, Russia and Poland is also a
positive indicator of market capacity in diverse locations.
Posted 16 October 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit