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Capital Markets Weekly: US IPO calendar unusually full indicating corporate rush to raise capital

27 July 2021 Brian Lawson

Emerging markets

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, IHS Markit

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