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Emerging markets: Oman, Egypt bridge loans and
Philippines AT1
A Reuters report claims that Oman has raised a USD2 billion
one-year loan, bridging for future bond issuance.
On 23 Almalnews.com website claimed that Egypt doubled its
recent loan from USD1 billion to USD2 billion, given the
participation of "a large number" of banks. The loan reportedly was
priced at 365 basis points over 3-month LIBOR with a one-year
bullet term. USD510 million were arranged in Islamic format.
Abu Dhabi has returned to bond markets, raising three, 10.5 and
50-year debt. It sold USD5 billion, comprising USD2 billion of
three-year bonds at 65 basis points over US treasuries, versus
initial guidance at 95 b.p., USD1.5 billion of 10.5 year debt at a
105 basis point margin, versus 135 b.p guidance, and USD1.5 billion
at 2.75% for 50 years, the longest tenor to date for a MENA
borrower, versus 3% guidance.
Rizal Commercial Bank from the Philippines has become the
country's first bank to sell AT1 debt and completed the first
dollar Asian bank AT1 deal since February. It offered a USD300
million perpetual non-call five-year deal at 6.75% area to first
call, pricing the deal at 6.5% or 626 basis points over comparable
US Treasuries. Proceeds will help maintain its capital ratios,
while funding asset growth. The deal attracted peak demand of over
USD825 million with a final order book of over USD600 million after
pricing was tightened. 57 accounts were involved with 79% of the
issue sold in Asia: asset managers took 59%, with private banks and
hedge funds buying 24% and 19% respectively.
The bank ranked only eighth in the country at end-2019,
according to IHS Markit Banking Risk Service data showing it with
4.5% of total sector assets. Its recent performance does not
indicate an urgent need for capital. In June 2020, the bank
reported capital adequacy and CET1 ratios of 13.9% and 13.0%
respectively, while impairment was modest, with a non-performing
loan ratio of 2.2% versus 2.1% a year previously. The NPL coverage
ratio improved to 95.4% in June 2020 versus 78.6% a year
previously.
ESG
Sweden's debut sovereign Green bond - expected to be an SEK20
billion 7 or 10-year deal - moved closer with an investor call
scheduled on 26 August, with one-on-one meetings planned for the
following day. The issue will focus on environmentally friendly
transportation such as electric railway development, along with
renewable energy and biodiversity projects.
On 24 August, Germany announced its Green Bond framework, ahead
of its planned issue in September, which will be in "twin bond"
format alongside a conventional issue with the same maturity and
coupon (but with a potentially-different issue price and distinct
ISIN identification code). Debt agency Finanzagentur has announced
that Germany has identified EUR12.7 billion of environmental
spending, spanning areas like transport, energy and industry,
forestry and agriculture.
Other debt
According to International Financial Review, US high grade
corporate issuance in August reached USD121.3 billion by 21 August,
surpassing the prior record August supply level.
Vodafone has sold a two-tranche hybrid issue in Euros,
attracting over EUR7 billion in demand for the EUR2 billion sale.
The two tranches each have 60-year terms and are first callable
after six and 10 years.
Vodafone's success triggered two further hybrid corporate deals,
and two bank AT1 sales:
OMV has sold perpetual debt callable after six and nine years
(with guidance of 3% and 3.375% to initial calls). It sold EUR750
million in the first tranche at 2.5% and EUR500 million at
2.875%.
Solvay offered a EUR500 million deal first callable after 5.5
years, with guidance of 3.25% until initial call. The offering was
priced at a 2.625% yield. The company also linked a tender to
repurchase an outstanding perpetual issue of the same size with
initial call in June 2021, which bears interest at 5.118%.
Intesa Sanpaolo also sold Additional Tier 1 debt, offering
EUR750 million tranches first callable after 7.5 and 11 years. The
two tranches gained demand of Eur3 billion and EUR3.5 billion, and
were priced at 5.5% and 5.875%, versus initial guidance of 6% and
6.5% respectively.
Its success prompted Bank of Ireland to launch a EUR300 million
perpetual non-call five year issue.
Bank senior debt issuance also has been active, with BNP Paribas
and Commerzbank selling liabilities in Euros and Nationwide
Building Society and Nordea each issuing for five years in US
dollars.
At the time of writing, Finland is marketing a EUR3 billion
ten-year deal.
Royalty Pharma, which undertook its IPO for over USD2 billion
earlier this year, has sold its first debt offering. On 24 August
the weak investment-grade rated firm placed a six-tranche USD6
billion package, which obtained USD10 billion in interest before
price guidance. Proceeds will be used primarily to repay existing
term loans.
Equity
RWE is reported to have enjoyed a "blowout" with a EUR2 billion
capital increase. On 18 August it announced a 10% capital increase
through an accelerated book-building with institutional investors,
with delivery of the new shares slated for 24 August. Proceeds are
to support short-term capacity build-out and to fund "mid and
long-term growth opportunities in renewables".
According to a Bloomberg report, Ant Group may seek as much as
USD30 billion from a share sale to accompany its planned
simultaneous dual listing on the Hong Kong and Shanghai Star
markets. The report suggested that the sale could take place as
soon as October: if such targets were achieved, this would make the
deal the largest-ever equity offering. The firm has suggested it
will sell at least 10 percent of its current capital, with a
Financial Times report claiming it would place 10% in Shanghai and
5% in Hong Kong.
Chinese electronic vehicle manufacturer Xpeng has filed for a
NYSE listing, seeking USD1 billion. It is offering 85 million ADS
at USD11-13 each, with USD400 million reported to be subscribed by
insiders and a further USD100 million from a new strategic
investor. The company has stated that Alibaba, Qatar Investment
Authority and Xiaomi are among those subscribing.
The IPO market continues to outperform within the stock markets.
The Renaissance IPO Index was 48.4% higher in 2020 as of 20 August,
while the Renaissance International IPO Index was 31.6% higher. In
the week to 21 August, eight special purpose acquisition companies
were floated, including the USD1.3 sale of Foley Trasimene
Acquisition, the third largest SPAC sale to date.
Outlook and implications
Oman's underlying debt fundamentals are of growing concern to
IHS Markit. Our latest forecast projects its 2020 fiscal deficit at
18.02% of GDP, with external debt levels equating to 108.7% of GDP.
Public sector debt has been on a steep upward trajectory, with
Reuters claiming that it rose from around 15% of GDP in 2015 to
almost 60% in 2019. Earlier this year, its bond prices spiked to
levels indicative of severe debt distress, and the country was
unable to complete plans to raise bond funding (of around USD3
billion).
In this context the reported access to a bank bridge facility is
clearly helpful - but at best a modest and temporary respite. USD2
billion is nowhere near enough to cover Oman's external funding
needs. Prevailing bond levels now do suggest that like Egypt and
Bahrain, bond issuance also would be possible, but this too would
not provide a lasting solution, for which major fundamental
structural change will be required.
Rizal's success in raising the first Philippine bank perpetual
bond sale, and the subsequent rush of hybrid sales by Vodafone,
OMV, Solvay and Intesa Sanpaolo provide multiple indicators of
continuing risk appetite, with the search for yield representing a
key likely driver of the "duration bid".
Germany's debut Green bond, slated for September, is a clear
"trophy" for ESG market credentials, with another major issuer
making a sizeable commitment to dedicated Green Bond issuance. How
the Green tranche trades relative to its "twin" will be an
interesting future indicator. In both cases, Germany and Sweden are
issuing Green debt for political reasons, to strengthen their
environmental credentials, rather than any market requirement to do
so - although there is little doubt that there will be strong
demand for the two countries' Green debut bonds.
Posted 27 August 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit
