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Capital Markets Weekly: Italy issues first negative-yield three-year bond

16 October 2020 Brian Lawson

Italy/ Slovenia

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.


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.


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



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