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This week's issuance highlight was the USD1.25 billion
eight-year sale by Ukraine at its lowest cost to date.
Additionally, the Maldives tapped its recent initial publicly
distributed sale: issuance by borrowers from Argentina and Oman
also indicated ongoing investor risk appetite.
Emerging markets
Ukraine raised USD1.25 billion of eight-year debt priced at
6.875%, the lowest coupon on record in its eleven international
issues. In its statement, Ukraine's Finance Ministry stated that
the transaction is meeting its plans for external borrowing, "most
of which we expect to fulfill with concessional financing from
international partners". Initial price guidance had been set at low
7% area.
The Maldives tapped its 9.875% 2026 sukuk, raising a further
USD100 million, priced at 10.5% in line with guidance. In late
March, it placed USD200 million priced at a discount with a 10.5%
yield, with demand of over USD370. The initial sale fell short of
the benchmark size the borrower reportedly had targeted, but
widened its investor base, with its prior two-dollar deals having
been for small size and placed with few buyers.
Pan American Energy, an Argentine firm, has accessed the
international markets, raising USD300 million of six-year bonds at
9.125%. The company is a joint venture between BP and Argentine
firm Bridas, itself 50% owned by CNOOC. In April, Fitch rated the
planned offering BB-, three notches above Argentina itself, citing
its external cash flow generation capacity from assets in Mexico
and Bolivia.
Oman's state-owned energy company OQ (formerly called Oman Oil
Company) attracted over USD4.5 billion in demand for a USD750
million seven-year deal, priced at 5.125% versus initial price talk
of 5.625%. The sale follows Oman itself raising USD3.25 billion
during January. Sohar Aluminium - 40% owned by OQ - recently raised
USD600 million from a bank loan, adding to foreign exchange inflows
to the country, following Oman Electricity raising the same amount
from banks in January, according to Reuters. Oman itself raised
USD2.2 billion in bank facilities in early March.
Abu Dhabi Ports also sold debt, pricing a USD1 billion ten-year
offering at midswaps plus 110 basis points versus initial guidance
of a 145 basis point spread. The firm is reported by Gulf News also
to have raised USD1 billion in bank funding.
UzAuto Motors, a car manufacturer owned by Uzbekistan's
government, sold USD300 million of unsecured five-year debt at
4.85% versus price guidance of 5.375%.
Standard Profil, which makes automotive sealing products, is
marketing EUR275 million of five-year debt. The Turkish company
(rated B3/B-) will thus test the degree of appetite for corporate
risk from the country, with pricing slated for (Friday) 30
April.
Additionally, Petronas has sold USD3 billion in a two-tranche
offering. It placed USD1.25 billion of ten-year bonds at 2.482% and
USD1.75 billion for 40 years at 3.404%, pricing 42.5 and 40 basis
points inside initial guidance of 135 and 155 basis points
respectively over US Treasuries.
Indonesian real estate firm Pakuwon Jati placed USD300 million
of seven-year bonds at 4.875%, versus 5.2% guidance. Demand reached
USD2 billion. 85% of the issue was allocated to Asian investors
with asset managers taking 87%. Proceeds will be used to redeem the
firm's USD250 million 5% 2024 issue.
ESG
A Financial Times article on 26 April has highlighted the
growing role of ESG funds globally and in Europe.
It cites TrackInsight data to claim that exchange traded funds
(ETFs) investing according to ESG principles grew their total
global assets under management from USD59 billion in 2019 to USD174
billion in 2020.
Additionally, according to Morningstar data used in the same
article, first quarter 2021 inflows into European ESG ETFs reached
EUR 25.8 billion, for the first time surpassing the total for
non-ESG ETFs (EUR22.3 billion). By comparison, inflows ESG ETFs had
represented under 20% of the total in the last two quarters of
2019.
Morningstar data further shows that the stock of assets in ESG
ETF funds now represents over 10% of the total stock of ETFs.
Despite some positive growth indicators, ESG ETF inflows in the
US totaled only USD7.6 billion of the USD248 of net inflows to such
funds during the first quarter of 2021.
Andorra has arranged its inaugural sustainability issue, a
Euro-denominated benchmark transaction. On 28 April it launched a
10-year issue, with demand reaching EUR2.5 billion from 157
investors in 19 countries. It priced EUR500 million at 1.25%.
For 2021-22, its presentation lists EUR591 million of planned
social outlays, dominated by healthcare (including COVID-9 related
measures) with EUR334.7 million, along with socio-economic and
education spending of EUR149.2 million and EUR76.9 million
respectively. EUR91.4 million of eligible Green outlays are
forecast. The country's presentation notes that its government
deficit reached 4.4% of GDP in 2020, from just 0.13% in 2019, with
a 2.61% deficit forecast for 2021: its debt stock rose from 33% at
end-2019 to 44% last year.
Brazilian cosmetics firm Natura sold USD1 billion of seven-year
sustainability linked notes at 4.125% versus mid-4% initial
guidance. The deal contains KPIs relating to carbon emissions and
recycling, according to Latin Finance sources, with an unusually
steep 65 basis point coupon penalty if these are missed.
South Korea's largest airport, Incheon International Airport
(which serves the Seoul area) attracted over USD1.5 billion for the
sale of USD300 million of five-year Green Bonds. The deal priced at
1.361%, 52.5 basis points over US Treasuries.
Other debt
The UK attracted GBP69.4 billion in demand for its latest
syndicated gilt sale, a GBP6 billion offering due in 2051 priced at
1.3115% with orders from 174 accounts. 89% of allocations went to
the UK.
Italy arranged sizeable dollar issuance, for three and 30
years:
It sold USD2 billion of three-year debt at 0.986%, attracting
over USD4.8 billion of demand from some 90 accounts. The USD1.5
billion 30-year portion was priced at 3.938%, attracting over
USD6.2 billion of interest from 100 buyers.
Elsewhere, Citigroup added to recent US bank supply with a
USD5.5 billion package, howbeit in smaller scale and with
shorter-term than other leading US banks.
Greek bank Eurobank placed EUR500 million of six-year bonds,
first callable after five years, priced at 2.125%, versus 2.375%
guidance.
Orange has sold EUR500 million of hybrid perpetual debt first
callable after eight years at 1.45%, with demand exceeding EUR1.9
billion. The deal is in parallel to a tender for outstanding
perpetual debt with first call dates in 2021, 2022, and 2023.
Implications and outlook
The latest funds flow data confirms that the ESG market has
advanced far more rapidly in Europe than in the USA and indicates
the degree to which such investment criteria are gaining increased
traction. Such momentum is, in turn, facilitating the placement of
ESG-oriented securities, as the pool of funds dedicated to such
assets expands, and helps to explain the more visible price
differential that has emerged in recent months between ESG and
non-ESG bond pricing.
Over time, a developing risk is that if the proportion of assets
under management with an ESG orientation increases, issuers deemed
to have more carbon-intensive footprints may face greater pressure
to adjust their conduct or suffer increasing investor
rejection.
Counterbalancing this, the performance of ESG funds -
particularly those with an equity orientation - is relatively
untested and there is no guarantee that first-mover advantage for
firms with an ESG orientation will provide superior long-term
returns.
Elsewhere, Ukraine's successful sale is a clearly positive
indicator, representing the best pricing level for the country to
date, although its high-risk profile is shown by the large premium
paid relative to regional peers such as Armenia. The combination of
Ukraine and Maldives issuing this week is a further positive
indicator of risk appetite, following late-March sales by Ghana and
Pakistan and the Maldives itself, as is the wide range of emerging
market issuers, including credits from Argentina and Oman.
Italy's dollar sale does not reflect a change in funding
strategy. It conducts occasional but regular dollar issuance to
broaden its investor base, generally swapping proceeds back into
Euros through currency swaps, with timing often designed to reflect
scope for arbitrage.
Posted 29 April 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit
