In a busy week ahead of the 4 July US holiday, the standout deal was a USD12 billion package for Qatar Petroleum, the largest emerging market deal in 2021, alongside sovereign packages forBrazil, Mongolia and the Philippines, alongside a USD8 billion acquisition financing by Salesforce and around USD7 billion for Softbank.

Emerging markets

Qatar Petroleum sold a jumbo four-tranche dollar package with five, ten 20 with initial price talk set at 80, 120, 145 and 155 basis point margins over comparable US treasuries (T). It sold an impressive USD12.5 billion, versus an expected USD10 billion, the largest offering from the MENA region since Saudi Arabia sold the same amount in September 2017. According to Reuters all four tranches were tightened by 30 basis points after demand exceeded USD41 billion. The package comprises USD1.5 billion for five years at T+50 basis points, USD3.5 billion for 10 years at T+90 basis points, USD3.5 billion for 20 years at 3.15% and USD4 billion for 30 years targeting Taiwanese buyers at 3.5%.

The Philippines sold USD3 billion of 10.5 and 25-year dollar debt, with USD2.25 billion in the longer tranche. Initial price guidance was set at 90 basis points above comparable US Treasuries and 3.55% for the long-dated tranche with final pricing set at 2.08%, a 60-basis point margin, and 3.25%.

Mongolia also was in the market with dollar debt, offering six and 10-year tranches at 4.25% and 5.25% area guidance. It placed an upsized USD1 billion with both tranches pricing way below guidance at 3.75% and 4.7%. Proceeds will be used in a tender for existing 5.125% 2022 and 5.625% 2023 bonds. IFR reported that the package has achieved the country's lowest cost and longest duration to date.

Brazil completed its first international sale this year on 29 June, placing USD2.25 billion. It issued USD1.5 billion of ten-year debt at 3.875% and tapped its 4.75% 2050 deal with USD750 million, priced at 4.925%. Demand exceeded USD7.5 billion. In a statement the issuer described the purposes of issuance to be promoting the liquidity of the country's dollar curve, providing a reference for Brazilian corporate issuance and "anticipating financing of maturities" of existing debt.

Brazilian financial services firm XP Inc raised USD750 million in a debut issue, priced at 3.5% versus initial guidance of mid to high-3% area.

Saudi Islamic bank Al Jariza placed its USD500 million Additional Tier 1 perpetual non-call five-year issue at 3.95% versus price talk of 4.25%-4.375% area.

Turkish polyester manufacturer SASA Polyester Sanayi has become the first convertible bond issuer from the country. It placed Eur200 million of five-year 3.25% bonds convertible into equity at a 27.5% to the firm's average share price between 24 June and 14 July.

ESG

Chinese property developer Shui On Land sold USD400 million of five-year (non-call four-year) bonds at 5.5% versus 5.75% area guidance. The deal is reportedly the first sustainability-linked transaction by a non-financial Chinese firm. Demand exceeded USD1.5 billion.

Canadian pipeline firm Enbridge Inc. arranged a debut sustainability-linked 12-year deal alongside a conventional 30-year bond. The USD1 billion sustainability-linked tranche was priced at 2.5%. Unsurprisingly, given its sector, the issuance was subject to criticism from environmental groups: according to Canada's Financial Post it was the first sustainability-linked deal by a North American pipeline firm Its VP of Treasury Max Chan claimed the firm had achieved at least five basis points "Greenium", cost savings versus conventional debt.

Assicurazioni Generali also has arranged its first deal under a new sustainability bond framework. It placed EUR500 million of 11-year Tier 2 debt at 1.713%, with the deal gaining EUR2.2 billion in demand from roughly 180 investors.

After UBS's debut last week, UniCredit debuted in the Green Bond market, gaining over EUR3.25 billion peak demand for its EUR1 billion eight-year senior preferred issue. The final book was EUR2.7 billion with the deal priced at 90 basis points over US treasuries, 30 basis points inside guidance (at 0.807%).

Investment-grade rated Suzano Austria, owned by the Brazilian paper firm, sold USD1 billion of 10-year sustainability linked bonds at 3.28%, some 20 basis points inside guidance. Proceeds will repay existing export pre-payment agreements and the early call of an outstanding 5.25% 2024 issue.

LG Chem gained an impressive USD8.5 billion in demand from a USD1 billion sale of five and 10 year Green Bonds at 1.48% (UST+60 basis points, 40 bps inside guidance) and 2.38% (UST+90 basis points, also 40 bps inside price talk).

Other debt

The EU returned to market with its second NGEU facility financing placing EUR15 billion of five and 30-year bonds. The sale on 29 June attracted EUR171 billion. The EU placed EUR9 billion of 0% five-year bonds priced at -0.335%, 11 basis points tighter than mid-swaps and 22 basis points above the corresponding Bund, attracting EUR88 billion for the tranche. It also sold EUR6 billion of 30-year debt at 0.732%, 22 basis points over mid-swaps (39.9 bps over comparable Bunds): this attracted EUR83 billion in interest.

Italy returned to the market on 24 June with an unusual syndication of floating rate debt. It placed EUR6 billion of seven-year debt yielding 69 basis points over Euribor. The deal is Italy's first syndicated FRN since 2010. Demand exceeded EUR12 billion.

Salesforce.com, a US cloud software company, attracted over USD31 billion in demand for a six-tranche USD8 billion package to help fund its USD27.7 billion of Slack, a corporate communications firm. The offering spanned three, seven, ten, 20, 30 and 40-year debt priced at margins between 18 and 95 basis points over US treasuries, 20-22 basis points inside initial guidance. The seven-year bond was in sustainability format with the USD1 billion tranche attracting USD4.7 billion.

Softbank also issued a sizeable transaction, a package worth over USD7 billion comprising four tranches each in USD and Euros (USD3.85 billion and EUR2.95 billion) with maturities from three to 12 years. The package gained total demand of over USD16 billion.

Cellnex arranged a debut US dollar deal, placing USD600 million for 20 years. The issue has a 3.875% coupon and 98.724% issue price: the issue is reported to have been swapped into Euros at 2.5%.

Unicredit sold a EUR750 million perpetual non-call 7 year additional Tier 1 deal, pricing at 4.45% versus 4.875% guidance with demand of EUR1.75 billion.

Air France-KLM sold EUR300 million of three-year debt at 3.125%, versus 3.75% area price talk, and EUR500 million for five years at 4%, 50 basis points inside initial guidance. Combined demand exceeded EUR4 billion.

Equity

Renaissance Capital's Q2 review reported that the US IPO market achieved a highly active second quarter with 113 IPOs raising USD39.9 billion, a record level. The report also noted that June had provided the busiest month since August 2000. Healthcare was the most active segment, followed by technology, which had its busiest quarter in two decades. In Q1 2021, 100 companies had raised USD39.2 billion: the corresponding figures for Q2 2020 were 39 deals raising USD15.1 billion. By contrast, SPAC issuance is reported to have declined 83%.

Implications and outlook

Coming just ahead of the 4 July US holiday, this week's issuance calendar has been impressive, with Qatar Petroleum and all three emerging market sovereign issuers gaining a strong reception. Brazil's debt spreads have been stable in recent months and relatively unaffected by its ongoing struggle with the COVID-19 pandemic. The upsizing of Mongolia's issue also was a positive indicator of strong prevailing demand.

The EU's latest order book was substantially greater than the first for its NGEU facility earlier this month but also was well short of the EUR233 billion achieved for the first SURE sale in late October 2020. Overall, while sounding impressive, such vast excess demand looks artificial, reflecting investor order inflation to obtain better allocations. Nevertheless, the deal's reception is a further positive indicator of investor demand, coming despite growing voices within the ECB suggesting that it should start to consider when to reduce its asset purchases.

While this week's supply has been sizeable, some reduction is likely during July and August to reflect seasonal factors, as this is the traditional "holiday season" in Europe and the USA. However, in recent years, such seasonality has been less marked.

Posted 02 July 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence