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This week's standout items include ESG debuts for Mexico, using
a sustainable development goal-based format, along with Brazilian
paper firm Suzano selling the second-ever sustainability-linked
bonds, alongside first-time ESG issues for Burberry, QNB,
Rentenbank, Munich Re and Unipol. IAG's underwritten rights issue
and Delta's plans to raise USD6.5 billion in secured bonds and
loans are also important risk-positive developments for the airline
sector.
ESG
Brazilian paper and pulp manufacturer Suzano completed the first
sustainability-linked bond from an emerging market issuer and only
the second overall linking a bond coupon to achievement of
sustainability goals. The deal is also the first using new ICMA
principles for such instruments.
Suzano sold USD750 million of 10-year bonds at 3.95%, versus
initial guidance of mid-4% area, with demand reaching USD7 billion.
The issue priced tighter than the company's outstanding January
2030 conventional issue, which yielded 4.03% before the sale. The
offering includes a 25-basis point penalty if the company fails to
reach its goal of reducing carbon emissions by 15% by 2030.
Although the structure now benefits from a formal industry-based
framework, it remains subject to criticism for not specifying the
use of proceeds. Suzano is also questioned by some investors for
alleged use of genetically modified trees and concerns over
Brazilian deforestation.
On 16 September, its use of the structure was followed by
Novartis, which announced an eight-year Euro-denominated deal at
mid-swaps plus 55 basis points guidance. Uruguay and Sydney Airport
are among other issuers considering the structure.
Mexico raised a EUR750 million 2027 bond to fund sustainable
development goals, the first sovereign issue linked to the UN's
Sustainable Development Goals. The issue, under its SDG framework,
was priced at 1.603%, with a 195-basis point spread, 40 basis
points inside guidance. Final demand reached EUR4.8 billion from
267 investors. The coupon, of 1.35%, is the second lowest on record
for Euro-denominated issuance by Mexico.
Mexico's Treasury stated that the deal "permits the country to
diversify its investor base", citing the existence of some 3000
funds with a sustainable investment focus, managing USD800 billion
of funds, of which 80% are in Europe.
Mexico noted that it had attracted 78 new buyers, heavily
focused towards sustainable assets, with 44% of the issue allocated
to specialist sustainable investors.
The statement further describes the deal as starting the
development of a foreign-currency sustainable bond yield curve
while establishing favorable reference pricing points for other
Mexican issuers.
Bank of China arranged a two-tranche "blue" bond, for
water-based environmental purposes, denominated in Euros and CNY,
through its Paris and Taipei branches. This is the first marine
sustainability transaction from an Asian borrower, the first from a
commercial bank and only the fourth to date overall. In a statement
Bank of China flagged that the issue was being conducted under its
Green Bond program, with proceeds dedicated to renewable energy and
sustainable water and waste-water management projects. The
three-year dollar tranche was for USD500 million, and priced at
1.054%, 90 basis points over comparable US Treasuries, versus
initial guidance of 130 b.p. BOC Macau sold CNY3 billion of
two-year debt at 3.15%.
On 14 September, QNB attracted over USD1.8 billion for its
USD600 million debut Green Bond, also the first by a Qatari bank:
the issue had a five-year term.
UK luxury fashion group Burberry gained GBP2.45 billion of
orders for its GBP300 million debut issue, the first sustainable
bond from its sector. Additionally, Prada, Salvatore Ferragamo and
Mercier all have signed loans liked to sustainable goals in the
last year.
Munich Re also enjoyed a successful Green Bond debut this week.
On 15 September, it placed a EUR1.25 billion Tier 2 Green
subordinated deal, the first by a German insurer. The 20-year
non-call 10-year deal was priced at 155 basis points over
mid-swaps, versus guidance of 190 b.p. with peak demand reaching
EUR5.7 billion. The final pricing was five basis points tighter
than secondary levels for the company's outstanding 2049 comparable
(non-Green) deal.
Landwirtschaftliche Rentenbank sold its first public green bond,
raising EUR1.75 billion for seven years with demand reaching just
under EUR4 billion. According to Horst Reinhard, representing the
issuer, "the record demand for a Rentenbank bond shows how
dynamically this market segment is currently developing".
Additionally, Société Générale attracted EUR5 billion in demand
for a "green positive impact bond" priced at 128 basis points
spread versus guidance of 155-160 b.p.
Italy's Cassa Depositi e Prestiti previously arranged its fifth
social bond, with proceeds dedicated to lending to Italian firms
involved in research and development, and to those badly affected
by the COVID-19 pandemic. The EUR750 million 1% eight-year deal was
strongly received, attracting orders from over 180 investors.
Italian insurer Unipol also is undertaking a debut Green bond,
using the extra liquidity to fund the repurchase of its EUR500
million 4.375% March 2021 notes.
Icade Santé, which invests in healthcare properties, sold its
debut social bond on 10 September, raising EUR600 million of
ten-year debt with a 1.375% coupon, priced 155 basis points over
the reference rate. According to the company's statement, the issue
was nearly 10 times oversubscribed.
Emerging markets
On 10 September, South Korea issued a USD1.45 billion two-
tranche operation involving the sale of USD625 million of 10-year
debt, which cleared at 1.198%, 50 basis points over comparable US
Treasuries, and EUR700 million of five-year debt at -0.059%, 35
basis points over mid-swaps. According to the country's Ministry of
Economy and Finance, the Euro-denominated sale is the first for a
non-European country to achieve a negative yield.
According to the Korea Herald, the deal initially had targeted
USD/EUR500 million but was upsized after demand exceeded USD5
billion and EUR5 billion respectively.
Bulgaria has raised EUR2.5 billion split equally between 10 and
30-year maturities, its first international issue in over four
years. The two tranches were priced at 0.389% and 1.476%,
respectively 60 and 145 basis points over mid-swaps, versus initial
guidance of 95 and 175-180 b.p. Final demand reached EUR3.7 billion
for the 10-year portion from 254 accounts while the long bond
gained EUR3.6 billion in demand from 236 buyers. Bulgaria's Finance
Ministry flagged that the 10-year deal achieved its lowest cost and
spread to date, while the 30-year bond represented its longest
tenor: the package is Bulgaria's largest international
borrowing.
Equity
This week's post-Labor Day IPO calendar was impressively busy,
with 12 US deals seeking some USD6.8 billion. The largest is for
cloud-based data firm Snowflake, selling 28 million shares at
USD75-85 each, along with a separate private sale of over USD800
million to Salesforce Ventures and Berkshire Hathaway. According to
media sources, Snowflake will be the largest software IPO on
record.
On 10 September, International Airlines Group, owner of British
Airways and Iberia, announced a fully underwritten EUR2.74 billion
rights issue of 2.98 billion new shares at a 35.9% discount to the
theoretical ex-rights price based on the closing price on 9
September. Qatar Airways has confirmed it is subscribing its 25.1%
share.
Outlook and implications
For the second week consecutively, ESG debuts are this week'
stand-out item.
While the deal itself was a clear success, IHS Markit Country
Risk specialists flag some contradiction inherent to Mexico's
leading role in issuance of sustainable debt, noting that the
country has not shown enthusiasm to develop renewable energy
sources, and its willingness to destroy jungle to progress the
state-favored Maya rail project.
Suzano's sustainable development goals-linked bond also went
well but faced criticism over Brazil's environmental stance and its
own activities. Despite such criticisms, this week's issuance
contains a very impressive list of firsts, including debut deals
for Munich Re, Unipol, German state-owned agricultural bank
Rentenbank, Burberry and Bank of China's two-currency Blue
bond.
IAG's rights issue is also a positive. Coming after Ryanair's
smaller share placing and last week's highly successful bond sale,
and an earlier share placement for EasyJet, several European
airlines are strengthening their financial positions without
recourse to state resources. Delta Air's large-scale bond sale
using its frequent flyer program as security is a further example
of airline sector finance serving to sustain the sector. On 13
September it announced plans to raise USD6.5 billion from a bond
sale and term loan to boost liquidity secured by its subsidiary
SkyMiles.
Posted 18 September 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit