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Chile and Indonesia brought this week's main emerging market
supply, the former with a social bond.
Indonesia arranged a three-tranche offering in dollars
comprising ten, 30, and 50-year debt, with the guidance of 2.55%,
3.45%, and 3.7% area. It placed USD600 million, USD750 million (as
a tap of its 3.05% 2051 deal) and USD300 million (tapping its 3.35%
2071 offering) at 2.20%, 3.1% and 3.35%, each 35 basis points
inside guidance. Demand for the three tranches reached USD2.1
billion, USD1.7 billion, and USD900 million. It also placed EUR500
million of seven-year 1% bonds issued to yield 1.068%, 122 basis
points over mid-swaps versus 150 basis points guidance.
Rwanda has mandated banks for its first international issue
since 2013. It is planning a 10-year dollar denominated deal, with
proceeds financing a tender for its outstanding USD400 million
6.875% 2023 issue.
Temasek has brought a rare AAA rated issue formally falling
within the Emerging Market category. On 26 July it sold USD2.5
billion of 10, 20, and 40-year debt, pricing the three tranches at
1.688%, 2.506%, and 2.799%. This provided margins of 40, 65, and 85
basis points over comparable US treasuries, 20, 15, and 15 basis
points inside initial guidance. Temasek is state-owned but
structured as a commercial investment company focused on equity
investment.
Fibra Soma, a Mexican real estate investment trust, placed its
debut international issue. It sold USD600 million of 10-year debt
at 4.424%, 312.5 basis points over comparable US Treasuries
(narrowly inside the initial guidance of 325 bps).
China Citic Bank gained USD4.8 billion of demand for a USD600
million perpetual non-call five-year Additional Tier 1 deal, priced
at 3.25% versus 3.75% area guidance. 99% was placed in Asia.
ESG
Benin has raised EUR500 million of 2035 debt in its first
sustainable offering, also the first from sub-Saharan Africa. The
sale was arranged on 15 July, with the deal pricing at 4.95%,
described by Benin's Ministry of Economy and Finance as
representing "a negative new issue premium of 0.2 percentage
point". Its statement described the deal as almost three times
subscribed with demand involving roughly 100 accounts, several of
which were buying securities from Benin for the first time.
Chile entered the markets on 21 July, seeking EUR1.75 billion of
five and 15-year Euro-denominated debt at 60 and 110 basis point
margins over mid-swaps. It placed EUR 1 billion of seven-year debt
at 0.296%, with the longer-dated tranche priced at 1.310%. Total
demand reached EUR4.5 billion: the issue priced in line with
guidance. In its statement, the issuer noted that the 0.1% coupon
on the five-year bond is the lowest on record for a Latin American
issuer. In its statement, Chile's Treasury flagged that the
transaction was arranged as a social bond for education,
healthcare, and pandemic-related expenditures. Chile has now issued
some USD20 billion of ESG debt since 2019 (USD10.8 billion of
social debt, USD7.7 billion of Green bonds, and USD1.5 billion of
sustainable bonds.
ISA Interchile, a Chilean infrastructure subsidiary of
Colombia's ISA Group, a conglomerate operating 51 companies in six
countries, sold a USD1.2 billion debut international issue. It
placed USD1.2 billion of 35-year Green Bonds at 4.5% versus
guidance of mid to high 4% area.
Adani Electricity Mumbai has priced its USD300 million 10-year
sustainability-linked debut at 3.867%, 255 basis points over
comparable US Treasuries, and 30 basis points tighter than initial
guidance. The issue has two KPIs: procurement of 60% of its power
from renewable sources by fiscal 2027 (versus 3% in 2019) and to
cut greenhouse gas emission intensity by 60% by the end of fiscal
2029 versus fiscal 2019 levels. Each indicator carries a 15-basis
point penalty if breached.
Greece's PPC sold a EUR500 million seven-year
sustainability-linked deal, its second in 2021. The issue was
increased from EUR350 million after gaining EUR2.3 billion of
demand: it was priced at 3.375%, versus guidance of 3.5-3.75%. The
issue's key performance indicator is to cut carbon dioxide
emissions by 57% in the period 2019-23: its prior sale targeted a
40% reduction between 2019 and 2022. Greek Energy Minister Kostas
Skrekas stated that the deal is "to refinance older and more
expensive borrowing".
Other debt
The expected rush of US bank supply has been duly forthcoming
since the last CM blog:
After Goldman Sachs' USD5.5. billion package on 14 July, Morgan
Stanley placed USD8.5 billion in a three-tranche offering on 16
July, the same day as its results release.
Bank of America sold USD7.75 billion on the same day. It tapped
an outstanding 2027 issue with USD2 billion at 1.542%. Like Morgan
Stanley, it used a fixed to floating structure for the remaining
tranches. A USD3.75 billion portion is first callable after 10
years, priced at 2.299% USD2 billion of 31- year debt pays 2.972%
for 30 years.
Bank of New York Mellon issued more modestly, raising USD1
billion split between five and 10-year debt priced at 1.065% and
1.8%.
Wells Fargo raised additional Tier 1 capital by the sale of
USD1.25 billion of perpetual, non-call five-year debt priced at
4.25% versus guidance of 4.375-4.5%.
On 21 July Goldman Sachs also sold USD750 million of perpetual
non-call five-year depositary shares, priced at 3.65% versus price
talk of 3.875-4%.
JPM closed this week's supply with USD2 billion of perpetual
non-call five-year preference shares placed at 4.2% versus guidance
of 4.375-4.5%.
Carnival Corp continued its refinancing program, placing USD2.4
billion of seven-year secured debt at 4%, versus 4.125% guidance.
Also within the junk market, DirecTV raised a USD2.3 billion
six-year (non-call two-year) issue at 5.875%, with proceeds funding
its spin-off from AT&T.
Additionally, luxury vehicle producer McLaren raised USD620
million of five-year debt rated Caa1/CCC/B. The issue priced at
7.5% versus price talk of 7.75% area. Proceeds are to refinance
2022 debt.
Equity
Equity market supply has been consistently active and heavy in
recent weeks.
18 US IPOs are slated for the week of 26 July, of which the
largest is for Robinhood Markets, a rapidly-growing no-commission
retail equity brokerage platform. The firm is offering 55 million
shares on Nasdaq priced at USD38-42 each. 95% of the issue is to
raise new capital. Salesforce, not previously an investor in the
firm, has indicated interest for up to USD150 million.
19 IPOs were completed in the week of 19-24 July, described by
Renaissance Capital as the largest number of deals in a week for 17
years. The largest was for Ryan Specialty, an insurance brokerage
firm specializing in complex risks selling 56.9 million shares at
USD22-25 each.
The deal rush followed 13 IPOs in the preceding week, despite
some signs of market indigestion (with two of the deals slated for
the early week withdrawn).
Our take
Both Chile and Indonesia are investment-grade rated credits,
facilitating their respective sales. Neither serves as a
particularly severe test of emerging market appetite - for example,
Indonesia's EMBI+ spread is around 150 basis points over US
Treasuries.
Accordingly, Benin is the most positive indicator of continuing
risk appetite, although its deal was relatively modest in size. The
use of external help to structure its sustainable framework is also
a favorable indicator: technical and administrative expertise is a
known impediment, according to our sources, for SSA emerging market
countries to structure ESG debt programs. Coming at the end of a
month in which several EM sovereign issuers, including Pakistan,
have funded successfully and against the background of several
relatively difficult credits gaining high-yield funding, the recent
calendar continues to show a general absence of risk aversion.
US equity activity appears more supply-led than driven by
exceptional demand. Only four of the 19 completed deals last week
priced above their initial range, while average first day returns
were calculated by Renaissance Capital at 7.9%, which they describe
as around 25% of the 2021 average performance. Issuer enthusiasm to
sell shares is likely to reflect a combination of uncertainty over
the course of the COVID-19 pandemic and the prospect of tighter
monetary conditions in the future. Deal cancellations, pricing
below indicated ranges, and weak secondary market trading would all
be potential indicators that the busy calendar is outpacing
investor demand.
Posted 27 July 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence
