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IFR 2379 - 17 Apr 2021 - 23 Apr 2021

Bank laggards revealed in greening portfolios

Natixis, Commerzbank and Intesa Sanpaolo have been singled out by equity analysts at Jefferies as three European banks that may face a tougher time complying with new green stress tests recently set out by the European Banking Authority, largely due to their activity in project finance. The EU supervisor last month published its proposals for banks to say by the end of June 2022 what proportion of their assets meet sustainability objectives as set out by the Paris Agreement on climate change and related measurements of environmental sustainability. The idea is that banks will then have a clearer idea about how exposed they are to carbon-emitting activities and how large a task they might have to transition to a carbon-neutral position. The Jefferies research has focused more specifically on environmental risks as opposed to social and governance ones, which it says are overemphasised by others trying to measure overall ESG risks. “We were surprised to learn that the 'E' is only weighted an average of 13% across two of the major third-party services (MSCI and S&P), yet it is the 'E' where most of the risk (P&L, balance sheet, capital distribution capacity) lies in our view,” said the note. “Central banks are increasingly looking to add climate to stress testing. This is likely to inform overall capital requirements and could have a bearing on risk-weighted asset density and, perhaps more significantly, capital distribution capacity,” it said. Jefferies said the three banks at the top of its list were NatWest Group, Svenska Handelsbanken and DNB. Jefferies said that European banks' lending to fossil fuel companies represented 1% of their loan books on average but had grown at a faster rate, 200bp above the global growth rate of 4.6% over the last three years. It said HSBC and BNP Paribas had increased their financing in the sector during that time. Santander was “a clear underperformer as it is the only bank to have has grown its brown financing at a greater pace than it has grown its green financing”. Major outperformers were Scandinavian banks led by DNB, which was one of seven banks to have decreased its brown financing in the period and at the same time increased its green financing by the fastest rate. It said that how banks addressed their assets was far more important than what they did internally to address carbon reduction. “The ESG impact which a bank's external activities have will almost always dwarf the impact that its internal activities have. Simply put, it doesn't matter if a bank's internal operations are carbon neutral if, at the same time, it happens to be the largest financier of carbon-intensive industries.” Too many banks had emphasised internal policy changes over decisions about external customers. The equity analysts chose to focus less on social and governance factors in their analysis since banks have to meet certain social standards in order to retain their licences to operate, and governance issues such as money laundering violations can only be judged retrospectively. Targets in those two areas were more susceptible to being met through “box-ticking” exercises whereas it was easier to measure what proportion of bank’s balance sheet was in sustainable areas. Looking beyond Europe, the Bank of England is to launch its own environmental stress tests for banks this year and the Federal Reserve has also indicated interest in this area. Jefferies highlighted a recent speech by Fed governor Lael Brainard. “Given environmental risks are cross-border and cross-sectoral in nature, we would expect eventual high levels of coordination across central banks when it comes to climate stress testing,” the broker said. Separately Insight Investment has called for more focus on the ESG aspects of fixed income investments. “Responsible investment has traditionally focused on how shareholders influence management decisions. Howe

P&M
5 min read
EMEA
IFR 2379 - 17 Apr - 23 Apr
Christopher Spink

Bonds

Trio out with tightly priced ESG deals

BNG Bank, Region Ile de France and Eurofima brought tightly priced ESG-related transactions across a range of maturities on Monday, wasting little time in coming to market at the start of what is expected to be a busy week of SSA issuance. “Ile de France, BNG and Eurofima all had flagged their deals from last week so they were able to get that Monday intra-day pricing," said an Ile de France lead. “It really does feel like a big, busy window. I think next week onwards it will calm down again a little bit. This week was always expected to be busy, last week was on the upside of how busy it could be but it was also a case of issuers trying to get ahead of this week.” BNG and Ile de France both held investor calls over the last couple of days of last week while the Eurofima mandate was announced last Wednesday. “They did some roadshow work. There have been calls and video calls to introduce the framework and obviously that helped," said a BNG lead. "I’ve seen the list of participants from the global investor call and there was a huge amount of interest in the name.” The spread for BNG's €2bn 0.125% April 2033 sustainable bond was set at mid-swaps less 3bp, tightening by 3bp from guidance via Bank of America, DZ Bank, Natixis and Rabobank. The bond priced through the issuer's curve with fair value seen at less 2bp, according to the lead. Books were in excess of €3.2bn, excluding JLM interest, by the final update. “I think one of the reasons this bond is so big is because they took an opportunity when the market is so good. They have been looking for a couple of weeks now and because of the investor demand they were able to print such a big bond," said the second banker. Through the curve Ile de France also priced through its curve with the spread for its €500m no-grow April 2028 sustainable note set at 19bp over interpolated OATs, 4bp inside guidance via Barclays, Credit Agricole, DZ Bank, HSBC and ING. “We started at 23bp area which was offering 2bp concession by my mark and priced at 19bp, so that’s clearly through fair value," said the first banker. The issuer introduced its new green, social and sustainable framework through a series of investor calls last week, opting for a broader ESG framework than some other borrowers. “This is a sustainability bond. You have issuers that have pure green programmes, then they have bonds that are sustainable which include the social element and others. This is all under the same framework," the first banker said. Final order books were over €3.3bn, excluding JLM interest. The smallest deal of the three came from Eurofima, a €250m April 2041 green bond that also tightened significantly from guidance. The spread was set at mid-swaps plus 17bp, 3bp inside guidance via Bank of America, Credit Agricole and Societe Generale. Demand was strong for the Aa2/AA rated issuer, with a final order book of €1.2bn, rising from €600m on the first update.

BON
3 min read
EMEA
David Cheetham

Bonds

DekaBank steams ahead of pipeline

DekaBank was the sole issuer in the European financials market on Monday, raising a sub-benchmark covered bond, though a supportive tone should encourage issuers to come ahead of blackouts. The German issuer built a book of over €700m for its €250m no-grow 10-year public sector Pfandbrief via Commerzbank, DekaBank and Natixis. It priced at 2bp through mid-swaps, from guidance of plus 3bp area. Country peer DZ Hyp is set to follow, having mandated Deutsche Bank, DZ Bank, Natixis, NordLB, TD and UBS for an eight-year benchmark. "Spreads are tight everywhere but they're even tighter in covered bonds," a syndicate banker said. "It's a by-product of the fact that we've had over 10 years of central bank support on both sides of the equation – they've taken away supply because of all the cheap liquidity that's available but also because they're buying so much." The ECB held almost €290bn under its third covered bond purchase programme at the beginning of April, according to the central bank's website. Syndicate bankers are seeing the market shrink, with the number of investors shrinking with it. "You've got something like 50 to 100 investors still participating," another syndicate banker said. "We've got fewer redemptions and the ECB is buying everything. You layer that on top of the fact that French agencies are pricing with 10bp to 15bp pick-up over covered bonds and get a better HQLA treatment, so it just doesn't really make sense to buy as an investor. Some issuers are asking themselves: do I really need to issue? Do I need to maintain a presence? Some have told us they won't do a covered before 2023." Still, for investors not focusing solely on the covered market, deals from Amco, Berlin Hyp and Anima will provide some welcome supply. Amco is preparing to bring its third transaction to market, following a debut in 2019 and a follow-on dual-tranche in July last year. "They did a sizeable print last year and are now a reasonably well-established name in the market," a lead on Amco said. "They've purchased a good chunk of MPS's NPEs and have therefore grown substantially in size. They are an active player in that market." The transaction will extend the borrower's curve. Its longest outstanding is a July 2027 trade issued last year as part of the dual-tranche exercise. Berlin Hyp concludes presentations for the FIG's market debut SLB on Monday, with launch expected on Tuesday. "Berlin Hyp has also been a bit of a pioneer," the first banker said. "I don't know if SLBs are for everyone, given that the senior asset class tends to be skewed towards TLAC/MREL where incentives to redeem are problematic, but there's no doubt the ESG overlay will be really interesting here, especially for a name like this one, which is tight and tends to be domestically sponsored." Constructive "The tone is constructive, although that's dependent on the size issuers are looking for and the jurisdiction. Overall, it's not an environment where issuers really have the upper hand," said the banker. The market has been solid post-Easter, but books have fallen more than expected from their peaks. Smaller drops "would have allowed issuers to dictate terms a bit but that's not really been the case. Rates that had contributed to the weakness in March have stabilised and spreads have tightened over the course of last week", he said. The iBoxx senior bail-in index closed at 63bp last week, more or less back to where it had been at the end of February 2020, just before the Covid-19 pandemic began. "We've seen capital outperform at the margin," the Amco banker said. "But spreads in senior preferred and senior non-preferred are so tight, there's just not that much room for performance." The yield on the Bank of America CoCo index closed at 3.70% last Friday, according to Refintiv, close to historical lows and bankers said interesting trades were likely to emerge in the subordinated space. "We've got some interesting projects that will provid

BON
5 min read
EMEA
Helene Durand

Bonds

DekaBank steams ahead of pipeline

DekaBank was the sole issuer in the European financials market on Monday, raising a sub-benchmark covered bond, though a supportive tone should encourage issuers to come ahead of blackouts. The German issuer built a book of over €700m for its €250m no-grow 10-year public sector Pfandbrief via Commerzbank, DekaBank and Natixis. It priced at 2bp through mid-swaps, from guidance of plus 3bp area. Country peer DZ Hyp is set to follow, having mandated Deutsche Bank, DZ Bank, Natixis, NordLB, TD and UBS for an eight-year benchmark. "Spreads are tight everywhere but they're even tighter in covered bonds," a syndicate banker said. "It's a by-product of the fact that we've had over 10 years of central bank support on both sides of the equation – they've taken away supply because of all the cheap liquidity that's available but also because they're buying so much." The ECB held almost €290bn under its third covered bond purchase programme at the beginning of April, according to the central bank's website. Syndicate bankers are seeing the market shrink, with the number of investors shrinking with it. "You've got something like 50 to 100 investors still participating," another syndicate banker said. "We've got fewer redemptions and the ECB is buying everything. You layer that on top of the fact that French agencies are pricing with 10bp to 15bp pick-up over covered bonds and get a better HQLA treatment, so it just doesn't really make sense to buy as an investor. Some issuers are asking themselves: do I really need to issue? Do I need to maintain a presence? Some have told us they won't do a covered before 2023." Still, for investors not focusing solely on the covered market, deals from Amco, Berlin Hyp and Anima will provide some welcome supply. Amco is preparing to bring its third transaction to market, following a debut in 2019 and a follow-on dual-tranche in July last year. "They did a sizeable print last year and are now a reasonably well-established name in the market," a lead on Amco said. "They've purchased a good chunk of MPS's NPEs and have therefore grown substantially in size. They are an active player in that market." The transaction will extend the borrower's curve. Its longest outstanding is a July 2027 trade issued last year as part of the dual-tranche exercise. Berlin Hyp concludes presentations for the FIG's market debut SLB on Monday, with launch expected on Tuesday. "Berlin Hyp has also been a bit of a pioneer," the first banker said. "I don't know if SLBs are for everyone, given that the senior asset class tends to be skewed towards TLAC/MREL where incentives to redeem are problematic, but there's no doubt the ESG overlay will be really interesting here, especially for a name like this one, which is tight and tends to be domestically sponsored." Constructive "The tone is constructive, although that's dependent on the size issuers are looking for and the jurisdiction. Overall, it's not an environment where issuers really have the upper hand," said the banker. The market has been solid post-Easter, but books have fallen more than expected from their peaks. Smaller drops "would have allowed issuers to dictate terms a bit but that's not really been the case. Rates that had contributed to the weakness in March have stabilised and spreads have tightened over the course of last week", he said. The iBoxx senior bail-in index closed at 63bp last week, more or less back to where it had been at the end of February 2020, just before the Covid-19 pandemic began. "We've seen capital outperform at the margin," the Amco banker said. "But spreads in senior preferred and senior non-preferred are so tight, there's just not that much room for performance." The yield on the Bank of America CoCo index closed at 3.70% last Friday, according to Refintiv, close to historical lows and bankers said interesting trades were likely to emerge in the subordinated space. "We've got some interesting projects that will provid

BON
5 min read
EMEA
Helene Durand

Bonds

Opportunity knocks for IG corporates

A busier week is in prospect in the euro investment-grade market as corporates look to get some fundraising in ahead of earning blackouts. After four issuers sold bonds in the euro market last week for a combined total of just €2.65bn, hopes for supply are higher for this week. Certainly, it has got off to a decent start with four deals hitting screens with issuers combining opportunism with strategic needs for cash. One of the issuers is also a debutant adding a bit of intrigue to a mix of mostly standard dealflow that keeps the market ticking over if nothing else. Although Europe's credit markets are in "somewhat of a sweet spot" according to JP Morgan analysts, primary has drifted since the Easter return, with most of the excitement elsewhere. That's not likely to be too different this week. Still, something is better than nothing and the something on Monday were two priced investment-grade deals and another two announced. Italian telecoms towers company Inwit priced a €500m 10-year note at 180bp over swaps. "This is an opportunistic trade," said a lead banker. "They are aiming at maturity extension and refinancing a portion of their term loans." The deal is the company's first with a 10-year tenor and extends its curve from October 2028. Those bonds were bid at plus 154bp pre-announcement, according to the leads, while Inwit's July 2026s were at plus 125bp. Some bankers purely extended the Inwit curve to assess fair value; others looked at, for example, Cellnex's 7s/10s curve. Either way, fair value was put at 175bp-180bp. Inwit began marketing at plus 210bp, which the lead said implied a 30bp premium, in line with the sort of levels seen on recent deals. But with a final book of €2.3bn, down from a peak of €2.5bn at the tight end of guidance, leads were able to knock off 30bp from IPTs. One point of interest is the company's split ratings; with S&P grading it at BB+ (stable) but Fitch at BBB- (stable). That Fitch rating means the deal is expected to be CSPP eligible. "The ratings of Inwit reflect its stable and visible revenue derived from long-term, CPI-linked contracts of its mobile towers portfolio in Italy," said Fitch in assigning its rating last week. "It has a cash-generative business with low maintenance capex and demand-driven growth capex that reduces investment risks." Another point of interest was the number of bookrunners: 10, albeit half are passives. BNP Paribas, Bank of America, IMI Intesa Sanpaolo, Mediobanca, and UniCredit are the actives. The other deal that launched on Monday was a €1.4bn dual-tranche offering from Japanese food and beverage company Asahi Group Holdings (Baa1), which showed that there remains plenty of interest for non-ECB eligible credits. Like Inwit it was an opportunistic trade, though as a lead banker pointed out "the low euro coupons are definitely important here since they are looking at early repayment of the bank loan for the acquisition AB InBev’s Australian business." Last year Asahi bought the business for A$16bn (US$12.5bn). Leads, Barclays, JP Morgan, Nomura and UBS, began marketing three and six-year notes at 70bp area and 85bp area respectively. A banker away reckoned those levels suggested a 30bp starting premium on both notes based on Asahi's curve. Books of more than €5bn at guidance, with €3bn for the three-year, then enabled leads to launch an €800m 2024 note at 45bp and a €600m 2027 tranche at 58bp, leaving just a handful of basis points on the table. Last week FCA Bank (Baa1/BBB/BBB+) priced an €850m three-year note at plus 50bp. That, too, got €3bn of orders. ESG but not ESG The two other investment-grade deals announced for pricing later this week were from SGS Nederland and Eurogrid. The former stands out as it's a debut issuer. The company, which is located in Switzerland inspects, verifies, tests and certifies products across the supply chain in a range of sectors, including agriculture, oil an

BON
8 min read
EMEA, Asia
Sudip Roy

BON RATE

EFSF gets the ball rolling on lively Monday

The European Financial Stability Facility (EFSF) brought the largest deal of the day on an uncharacteristically busy Monday, raising more than half of its second-quarter funding target with a long five-year transaction. The deal was one of four euro SSA transactions out, while a new 15-year benchmark from Spain and a four and 50-year dual-tranche offering from Austria have also been mandated, with both deals expected to come Tuesday. “I don’t think I’ve ever seen such a strong start to the week, not even on the first day of the year. It’s crazy," said an EFSF lead. “I know that tomorrow will continue to be busy too, there’s another trade around the five-year mark coming, from Austria. They were looking at doing something longer, but now they are looking at that, the EFSF had to take it into account – and they did so by coming intraday today.” The spread for EFSF's €4bn 0% July 2026 note was set at mid-swaps less 10bp, 2bp inside guidance via Bank of America, LBBW and Societe Generale, with order books closing in excess of €18.2bn, including €250m JLM interest. “There were some differing views on fair value, in the range of 1.5bp–2bp of concession. We saw fair value in the context of minus 12bp," said the lead. “EIB and the ESM are trading around 2bp tighter than the EFSF, and then you have the EU, which is trading around 1bp tighter than that.” The European Union's €8bn 0% March 2026 paper was bid at less 15bp on Monday afternoon, according to Tradeweb. The bond priced near the end of March at minus 14bp. KfW's €5bn 0% June 2026 paper priced at less 11bp at the start of March and was quoted bid at less 13bp. The success of both these five-year deals, and in particular the order book composition for the KfW transaction, where the vast majority was allocated to accounts classified as real money (45% official institutions and 44% to asset managers), were the decisive factors behind the issuer's choice of maturity, according to the lead. "Those deals were great successes; KfW’s five-year had almost 90% real money accounts," he said. “I have to say the quality of the order book here is also very good. A lot of official institutions that put in good order sizes, central banks from Asia and Eastern Europe. You also have quite good real money in there too.” The issuer continued with its usual practice of appointing co-leads for the transaction. “The EFSF always invite co-leads on a retention basis and they only get €5m. It’s not based on the quality of book, it’s just whether they accept or not. The whole market group, which is 37 banks, minus the three that are leads, are invited as co-leads," said the lead. “The German Bundesbank do the same, they always do it on a retention basis, whereas usually other accounts don’t do it that way, they look at the quality and then they see. Here, you just need to accept and then it’s fine.” The EFSF and European Stability Mechanism plan to raise €7bn and €2bn, respectively, in the second quarter, the same overall amount as Q1.Sovereigns line up Austria is set to add to the ultra-long-end supply of European sovereigns, with its forthcoming dual-tranche transaction comprising an April 2071 and April 2025 note to be lead managed by Bank of America, Deutsche Bank, JP Morgan, Morgan Stanley, NatWest Markets and UniCredit. “They have a habit of going longer and they do like to reach those kind of maturities. The previous week’s ultra-long trade went pretty well, so I think that’s played a part and kind of drove it here," said a lead. “I think it will be fairly evenly split in terms of size aspirations. We haven’t really got into that detail yet but I suspect it will be even between the tranches. Somewhat ironically the one we talked about most was the four-year.” Last week, Italy surprise

BON RATE
6 min read
EMEA
David Cheetham

Bonds

Opportunity knocks for IG corporates

A busier week is in prospect in the euro investment-grade market as corporates look to get some fundraising in ahead of earning blackouts. After four issuers sold bonds in the euro market last week for a combined total of just €2.65bn, hopes for supply are higher for this week. Certainly, it has got off to a decent start with four deals hitting screens with issuers combining opportunism with strategic needs for cash. One of the issuers is also a debutant adding a bit of intrigue to a mix of mostly standard dealflow that keeps the market ticking over if nothing else. Although Europe's credit markets are in "somewhat of a sweet spot" according to JP Morgan analysts, primary has drifted since the Easter return, with most of the excitement elsewhere. That's not likely to be too different this week. Still, something is better than nothing and the something on Monday were two priced investment-grade deals and another two announced. Italian telecoms towers company Inwit priced a €500m 10-year note at 180bp over swaps. "This is an opportunistic trade," said a lead banker. "They are aiming at maturity extension and refinancing a portion of their term loans." The deal is the company's first with a 10-year tenor and extends its curve from October 2028. Those bonds were bid at plus 154bp pre-announcement, according to the leads, while Inwit's July 2026s were at plus 125bp. Some bankers purely extended the Inwit curve to assess fair value; others looked at, for example, Cellnex's 7s/10s curve. Either way, fair value was put at 175bp-180bp. Inwit began marketing at plus 210bp, which the lead said implied a 30bp premium, in line with the sort of levels seen on recent deals. But with a final book of €2.3bn, down from a peak of €2.5bn at the tight end of guidance, leads were able to knock off 30bp from IPTs. One point of interest is the company's split ratings; with S&P grading it at BB+ (stable) but Fitch at BBB- (stable). That Fitch rating means the deal is expected to be CSPP eligible. "The ratings of Inwit reflect its stable and visible revenue derived from long-term, CPI-linked contracts of its mobile towers portfolio in Italy," said Fitch in assigning its rating last week. "It has a cash-generative business with low maintenance capex and demand-driven growth capex that reduces investment risks." Another point of interest was the number of bookrunners: 10, albeit half are passives. BNP Paribas, Bank of America, IMI Intesa Sanpaolo, Mediobanca, and UniCredit are the actives. The other deal that launched on Monday was a €1.4bn dual-tranche offering from Japanese food and beverage company Asahi Group Holdings (Baa1), which showed that there remains plenty of interest for non-ECB eligible credits. Like Inwit it was an opportunistic trade, though as a lead banker pointed out "the low euro coupons are definitely important here since they are looking at early repayment of the bank loan for the acquisition AB InBev’s Australian business." Last year Asahi bought the business for A$16bn (US$12.5bn). Leads, Barclays, JP Morgan, Nomura and UBS, began marketing three and six-year notes at 70bp area and 85bp area respectively. A banker away reckoned those levels suggested a 30bp starting premium on both notes based on Asahi's curve. Books of more than €5bn at guidance, with €3bn for the three-year, then enabled leads to launch an €800m 2024 note at 45bp and a €600m 2027 tranche at 58bp, leaving just a handful of basis points on the table. Last week FCA Bank (Baa1/BBB/BBB+) priced an €850m three-year note at plus 50bp. That, too, got €3bn of orders. ESG but not ESG The two other investment-grade deals announced for pricing later this week were from SGS Nederland and Eurogrid. The former stands out as it's a debut issuer. The company, which is located in Switzerland inspects, verifies, tests and certifies products across the supply chain in a range of sectors, including agriculture, oil an

BON
8 min read
EMEA, Asia
Sudip Roy
IFR 2378 - 10 Apr 2021 - 16 Apr 2021

US IPO rush defies wobble

US ECM bankers are looking to high-profile large IPOs and the slowdown in competing SPAC products to help reset the new-issue market after a rough end to the first quarter. Though the first three months of 2021 saw record global ECM volumes, disappointing debuts in March by US companies such as Oscar Health, DigitalOcean and Compass (and Deliveroo in the UK) marked a turn in investor moods as rising market interest rates prompted a sell-off in momentum stocks. Yet a strong start to the second quarter for US equities, with the S&P 500 up 3.1% in April by Thursday's close taking 2021 gains to 9.1%, has encouraged syndicate desks to quickly fill the IPO calendar in early April. “Things are calming down in terms of high-growth valuations, but not too much. Underneath that, conditions are solid, especially for the high-calibre deals and especially in the US," said Josef Schuster, the founder of IPO index provider IPOX Schuster. Led by mobile app platform AppLovin’s US$2.13bn Nasdaq IPO, the week ahead will see at least five companies seeking nearly US$5bn of combined proceeds pricing IPOs on US exchanges, plus cryptocurrency exchange Coinbase Global's Nasdaq direct listing. This represents little slowing of the pace that saw US companies lead the way as global IPO proceeds topped a record US$100bn in the first quarter. Several large IPOs are also expected to launch early in the coming week, among them fast-growing automation software company UiPath. Underperformance Yet bankers concede that price sensitivity and investor selectivity that emerged in March could take its toll on some deals. As one measure of IPO returns, the First Trust US IPO Index is trailing the S&P 500 by nearly 400bp in 2021, while over the last 12 months it has produced a gain of nearly 92%, close to double the equity benchmark's return. The average 2021 IPO is showing a 10.5% gain, well down from 66% for the 2020 IPO vintage. These numbers exclude SPACs that have exploded in 2021 as more than 300 blank cheque IPOs have raised nearly US$100bn. Issuance has eased to a trickle in recent weeks as many SPACs traded below their trust value and some that have announced mergers have stumbled. “SPACs have slowed right down, new-issue performance has been mixed, and even some of the cyclical reopening stocks have pulled back, so there’s a need to wait and see,” one US ECM banker said. “I don’t think we are going to get back to the gangbuster days of 40-times oversubscription [of IPOs] and the play every deal mentality. There’s a little more discipline in the market.” Another US ECM banker said though high-quality deals could get done in most market conditions, the US IPO market had become a buyer’s market in the past month. “There's a lot of accounts saying 'if I don't like this deal there are 10 others I can invest in, so I am going to be more guarded and price sensitive'," the second banker said. The slowdown in SPAC issuance, IPOs and placements tied to acquisitions, means investors do have more time to study corporate IPOs. AppLovin was founded by former CBOE derivatives trader Adam Foroughi in 2011 to take advantage of the shift of internet traffic to mobile devices and help users discover mobile apps. The KKR-backed company is a big test of what valuations investors will accept for high-growth companies. The terms value AppLovin at about US$30bn or 35 times adjusted Ebitda for 2022, according to bankers close to the deal, high by most standards but still a discount to market high-flyers such as Zoom Video Communications and Trade Desk. Irrespective of final pricing the IPO will be a home run for sponsor KKR, which invested US$400m in the company in 2018. While the private equity firm is selling 2.5m shares in the 25m-share offering, it will still own two-thirds of the company post-IPO. Both AppLovin and Alkami Technology, an online banking platform that is pricing a US$150m IPO after the cl

EQY
5 min read
Americas
IFR 2378 - 10 Apr - 16 Apr
Anthony Hughes

BON RATE

EFSF gets the ball rolling on lively Monday

The European Financial Stability Facility (EFSF) brought the largest deal of the day on an uncharacteristically busy Monday, raising more than half of its second-quarter funding target with a long five-year transaction. The deal was one of four euro SSA transactions out, while a new 15-year benchmark from Spain and a four and 50-year dual-tranche offering from Austria have also been mandated, with both deals expected to come Tuesday. “I don’t think I’ve ever seen such a strong start to the week, not even on the first day of the year. It’s crazy," said an EFSF lead. “I know that tomorrow will continue to be busy too, there’s another trade around the five-year mark coming, from Austria. They were looking at doing something longer, but now they are looking at that, the EFSF had to take it into account – and they did so by coming intraday today.” The spread for EFSF's €4bn 0% July 2026 note was set at mid-swaps less 10bp, 2bp inside guidance via Bank of America, LBBW and Societe Generale, with order books closing in excess of €18.2bn, including €250m JLM interest. “There were some differing views on fair value, in the range of 1.5bp–2bp of concession. We saw fair value in the context of minus 12bp," said the lead. “EIB and the ESM are trading around 2bp tighter than the EFSF, and then you have the EU, which is trading around 1bp tighter than that.” The European Union's €8bn 0% March 2026 paper was bid at less 15bp on Monday afternoon, according to Tradeweb. The bond priced near the end of March at minus 14bp. KfW's €5bn 0% June 2026 paper priced at less 11bp at the start of March and was quoted bid at less 13bp. The success of both these five-year deals, and in particular the order book composition for the KfW transaction, where the vast majority was allocated to accounts classified as real money (45% official institutions and 44% to asset managers), were the decisive factors behind the issuer's choice of maturity, according to the lead. "Those deals were great successes; KfW’s five-year had almost 90% real money accounts," he said. “I have to say the quality of the order book here is also very good. A lot of official institutions that put in good order sizes, central banks from Asia and Eastern Europe. You also have quite good real money in there too.” The issuer continued with its usual practice of appointing co-leads for the transaction. “The EFSF always invite co-leads on a retention basis and they only get €5m. It’s not based on the quality of book, it’s just whether they accept or not. The whole market group, which is 37 banks, minus the three that are leads, are invited as co-leads," said the lead. “The German Bundesbank do the same, they always do it on a retention basis, whereas usually other accounts don’t do it that way, they look at the quality and then they see. Here, you just need to accept and then it’s fine.” The EFSF and European Stability Mechanism plan to raise €7bn and €2bn, respectively, in the second quarter, the same overall amount as Q1.Sovereigns line up Austria is set to add to the ultra-long-end supply of European sovereigns, with its forthcoming dual-tranche transaction comprising an April 2071 and April 2025 note to be lead managed by Bank of America, Deutsche Bank, JP Morgan, Morgan Stanley, NatWest Markets and UniCredit. “They have a habit of going longer and they do like to reach those kind of maturities. The previous week’s ultra-long trade went pretty well, so I think that’s played a part and kind of drove it here," said a lead. “I think it will be fairly evenly split in terms of size aspirations. We haven’t really got into that detail yet but I suspect it will be even between the tranches. Somewhat ironically the one we talked about most was the four-year.” Last week, Italy surprise

BON RATE
6 min read
EMEA
David Cheetham
IFR 2378 - 10 Apr 2021 - 16 Apr 2021

Czech energy firm EPH's €1bn loan draws ESG criticism

A recent €1bn syndicated loan for Czech energy company EPH is attracting criticism and highlighting difficulties banks face when implementing their restrictions on coal financing when they provide funding to parent companies with coal-related subsidiaries. Climate-focused think-tank the Anthropocene Fixed Income Institute (AFII) last week described the holding company loans as "effective coal funding", which it said should be of concern to the banks involved. “The stakeholders in the deal are engaging in coal or lignite [brown coal] funding,” AFII said. The three-year unsecured loan shows the limitations of banks’ exclusionary policies that typically set thresholds based on the percentage of revenues derived from coal, and are not necessarily consistent. EPH denied that funds would be used to refinance its coal business, and Komercni Banka, the agent on the loan and a subsidiary of Societe Generale, ING and UniCredit said that the facility had been provided solely to finance EPH’s non-coal activities. “No part of this loan is used to support residual coal activities within the group,” an EPH spokesman said. Komercni Banka said that the necessary due diligence was carried out, especially the environmental assessments, in line with parent Societe Generale’s thermal coal sector policy, which is one of the tightest in the banking sector. SG says that it will not provide new financial products and services to existing clients that have more than 25% of their revenue linked to the thermal coal sector and have not communicated a transition plan, and sets similar restrictions for prospective clients. EPH said that the share of revenue from coal generation in its portfolio fell to 21% in 2019 and expects this to decline further as large parts of its coal-based assets are either decommissioned or converted to zero or low carbon technologies. It expects to save more than 40 million tonnes of CO2 annually by 2035. Privately owned EPH has used debt to snap up cheap high-emitting power plants that European utilities were keen to divest in the energy transition, such as Swedish utility Vattenfall’s German lignite assets in 2016. Structure questioned Holding company EPH signed the €500m revolving credit and two €250m term loans in mid-March with a group of international banks, including Citigroup, HSBC, Credit Suisse, UniCredit, ING, Commerzbank, Bank of China, Komercni Banka and SMBC. It will be used to refinance indebtedness of the EPH Group and for general corporate purposes. EPH has two subsidiaries. EP Infrastructure holds its gas operations and raises financing directly, most recently a €500m 10-year bond in late February. It also includes coal-fired combined heat and power plants. The other subsidiary, EP Power Europe (EPPE), holds legacy high-emitting coal-fired power plants, including LEAG, MIBRAG and Mehrum, along with other assets, including renewable energy and gas facilities. Anthropocene queried why EPH is raising a holding company loan rather than for EPPE directly, and asked if it could be a way to circumvent banks’ exclusion rules. “AFII analysis suggests that this money is very likely to go to the coal business as otherwise it (EPH) would have raised money in the gas business," said Ulf Erlandsson, executive chair of AFII. EPH is reducing its coal business and expects to close approximately 50% of its current coal-fired power plants by 2022, and 100% of its hard coal fired power plants by 2025. Some of the loan will be invested in zero and low carbon assets and projects and in developing new combined cycle gas turbines to replace coal and less efficient gas power plants. “Whether within EPPE or EPH we will not use the newly acquired funds to refinance the coal business,” the company spokesman said. One lender said that the loan would be used to finance debt at EPH subsidiaries, which included a subsidiary that has coal assets, b

LOA
6 min read
EMEA
IFR 2378 - 10 Apr - 16 Apr
Tessa Walsh

Latest News - Global

Add to My IFR

RATE FX

BUZZ-USD/JPY caught between 10-DMA, minor Fib support by 108.99; UST yield key

USD/JPY ends NY -0.25% at 109.38, trades slight 109.45-25 range in NorAm Steady UST yields ahead of Tues CPI, keeps USD/JPY in check USD eyes 109 support vs yen ahead of key US data later this week [nL1N2M51LI JPY IMM short hovers by 1-yr highs, yen specs may look to re-accumulate Bears in control, supt by 109 holding for now, bounces shallow Bulls need to regain 10-DMA by 110.03 to slow the bearish tide Steady UST yields, below recent 1.74 10-y high may inhibit future USD gains For more click on FXBUZ JPY Chart: https://tmsnrt.rs/3dUjJxb

RATE FX
2 min read
Global
Paul Spirgel

Equities

Trustly to carry out SKr8bn-plus Stockholm IPO

Swedish digital payments platform Trustly will target SKr8bn (US$934m) in fresh cash in a Stockholm listing, alongside a secondary sale by main owner Nordic Capital. The cash will be used to finance the redemption of outstanding preference shares and to repay all of its credit facilities. Carnegie, Goldman Sachs and JP Morgan are joint global coordinators, and joint bookrunners with Citigroup, Bank of America, BNP Paribas, Deutsche Bank, SEB, Swedbank/Kepler Cheuvreux and Rabobank. Valuations of €6bn–€9bn are being talked of, but exact valuations will be worked out during pre-marketing as investors look at Trustly's growth predictions compared with its peers. The free-float will be about 20%. Trustly is being compared with a wide group of peers in the payments industry. Dutch digital payments group Adyen was the most mentioned peer during pilot-fishing, as well as Paypal and Shopify. Feedback from investors so far is very strong, with the deal pitted as being large, significant and forward-looking in terms of markets like the US. Founded in 2008, the platform allows consumers to pay each other directly without need for a bank to transact the payment. In 2020 it processed around US$21bn of transaction and recorded adjusted Ebitda of SKr907.4m, up 30.6% from SKr694.6m in 2019 and representing a margin of 46%. The company is targeting annual revenue growth of more than 30% in the medium term and an Ebitda margin of 45% from 2023.

EQY
Quick read
EMEA

Structured Finance

CMBS: Freddie Mac SPC Series K-F107 US$964m+ *Public Announcement*

Freddie Mac has announced on its upcoming public US$946.180m offered multifamily SPC Series K-F107 transaction; for pricing this week of April 12th. Joint Bookrunners: Goldman Sachs & Co. LLC and Amherst Pierpont Securities<br bbg-font-size="medium" data-bb-font-size="medium">Co-Managers: Academy Securities, Barclays, J.P. Morgan, and Piper Sandler & Co. - TRANSACTION DETAILS - Cut-off Balance: $1,042,357,000<br bbg-font-size="medium" data-bb-font-size="medium">Collateral: 30 Loans / 30 Properties<br bbg-font-size="medium" data-bb-font-size="medium">DSCR/LTV: 2.04x / 66.9%<br bbg-font-size="medium" data-bb-font-size="medium">Loan Seller: Freddie Mac<br bbg-font-size="medium" data-bb-font-size="medium">Property Type: Multifamily<br bbg-font-size="medium" data-bb-font-size="medium">Geographic: CA: 20.7%, WA: 14.5%, TX: 11.1%, AZ: 10.3%, FL: 9.7%, VA: 9.0%, MI: 6.8%, GA: 5.8%<br bbg-font-size="medium" data-bb-font-size="medium">* Collateral subject to change<br bbg-font-size="medium" data-bb-font-size="medium">** Based on credit support of related classes issued by underlying trust<br bbg-font-size="medium" data-bb-font-size="medium">- Expected Timing- <br bbg-font-size="medium" data-bb-font-size="medium">Pricing: Week of April 12th<br bbg-font-size="medium" data-bb-font-size="medium">Settlement: April 22, 2021

SF
Quick read
Americas
Doris Dastas

RATE FX

EUR/USD Trader

EUR/USD continues to hug the 200-DMa as it consolidates gains off the March 31 low. Rising daily, monthly RSIs imply upside momentum is in place. Consolidation is typically a healthy development for trends but key data risk looms. We will stand aside and see how price action after the data develops before entering a position.

RATE FX
2 min read
Christopher Romano

Bonds

PRICED - Kia Corp launches US$300m 3yr and US$400m 5.5yr greens

* PRICED: - US$300m 1.00% cpn 3-year(4/16/24) at 99.691, yld 1.105%. Spread: T+75bp - US$400m 1.75% cpn 5.5-year(10/16/26) at 99.797, yld 1.789%. Spread: T+90bp Settlement: 4/16/21 * Launched: USD300m 3yr at T+75 ; USD400m 5.5yr at T+90. Allocs & pricing shortly. Citi is B&D. (2:56pm) Kia Corp is marketing a US dollar benchmark 144A/Reg S green bond offering in two tranches. Final price guidance is Treasuries plus 75bp for a three-year note and plus 90bp for a 5.5-year portion. The respective initial price guidance was plus 110bp area and 125bp area. The senior unsecured notes have expected ratings of Baa1/BBB+ (Moody's/S&P), in line with the issuer, and will price today during New York hours. Proceeds will be used to finance or refinance new and/or existing eligible green projects under Kia's green finance framework. The eligible projects involve the development and production of zero emission vehicles such as battery electric vehicles and hydrogen powered cars. Kia aims to expand the annual sales of its alternative fuel vehicles to 40% of its total sales by 2030. Bank of America, Citigroup, HSBC and Standard Chartered Bank are joint bookrunners. The Korean automobile manufacturer first visited the international bond market in 2011 and previously issued dollar bonds in 2017 to raise US$900m from a dual-tranche 144A/Reg S transaction. Kia is a subsidiary of Hyundai Motor Co and part of the Hyundai Motor group, which is roughly the world's fifth largest and Korea's largest automaker by sales volume, according to Moody's. (10:34am)

BON
Quick read
Global

Bonds

Kia returns to the US bond market with debut green bond

South Korean automaker Kia returned to the US high-grade bond market for its first deal since 2017, launching a US$700m two-part green bond on Monday. Kia garnered strong investor demand that helped tighten spreads by 35bp through price progression on the US$300m three-year and US$400m 5.5-year, which launched at 75bp and 90bp over Treasuries, respectively. Initial price thoughts were set in the area of Treasuries plus 110bp and 125bp. Proceeds will be used to fund eligible projects under its green bond framework, which includes the development and manufacturing of zero-emission electric vehicles and investments in electric charging infrastructure. Kia launched its Niro EV model last year and this year is looking forward to the launch of its EV6 line this summer. The two vehicles bring Kia closer to its goal of launching 11 new electric vehicles by 2025, according to an investor presentation. Kia says its goal is to grow green cars – including electric vehicles, hybrid electrics and plug-in hybrid electrics – to 40% of total sales by 2030. However, the auto sector, in general, is still one where investors such as Tony Trzcinka, portfolio manager at Impax Asset Management, see considerable risks. Green bonds from the sector tend to walk a fine line between investing in business as usual and real sustainability goals, Trzcinka said. “It’s the risk in the transition," he said. "There’s a lot of change happening but EVs are still a very small piece of what they do and there are still emissions standards and a lot of reliance on SUVs and trucks. So, we have investments there but it’s an area where we’re cautious.” Other credit factors helped drive investor support including Kia's resilience through the pandemic as one of the few automakers not downgraded over the last year. With ratings of Baa1/BBB+ from Moody's and S&P, Kia maintains higher ratings than US carmakers GM and Ford, which maintain low Triple B and Double B ratings, respectively. Moody's even improved its outlook for Kia to stable from negative last month. Kia also receives support from its parent company Hyundai Motor, which has already raised US$3.3bn stateside this year, according to IFR data. Hyundai, rated Baa1/BBB+, priced its own US$600m five-year green bond back in February at 92.5bp over Treasuries. The 1.25% 2026 now trades at a G spread of around 87bp, according to MarketAxess data. "Kia's Baa1 rating reflects its underlying credit strength, underpinned by the company's considerable synergies with its parent, Hyundai Motor Company (Baa1 stable), solid position in the Korean automotive market, high geographic diversification, improving profitability and strong balance sheet," said Wan Hee Yoo, senior credit officer for Moody's. Like Toyota last week, Kia and Hyundai are better positioned to navigate the chip shortage plaguing automotive manufacturers, according to a Reuters report. Both Hyundai and Kia are said to have maintained a stockpile of chips that will help the manufacturers keep up production amid heightened demand. Bank of America, Citigroup, HSBC and Standard Chartered Bank are joint bookrunners on Monday's deal.

BON
3 min read
Americas, EMEA
William Hoffman

Bonds

LAUNCH - Genting Malaysia US$1bn 10yr at T+220bp

* LAUNCH: US$1bn at T+220bp * FPG T+220 (the #). Citi is B&D. (1:21pm) Genting Malaysia is marketing a 10-year US dollar benchmark 144A/Reg S bond offering at initial price guidance of Treasuries plus 260bp area. The senior unsecured notes will be issued by GenM Capital Labuan, a wholly owned subsidiary of Genting Malaysia, which will also provide an unconditional and irrevocable guarantee. GenM is a globally diversified casino and resort operator with over 40 properties in Asia, Europe and the Americas. The company is 49.5%-owned by Genting, which is rated Baa2/BBB/BBB. The notes are expected to be rated BBB/BBB (S&P/Fitch), in line with GenM. The deal has received strong indications of interest and feedback post investor calls and will price as early as today during New York hours, according to the leads. Proceeds will be used for refinancing, capital investments and working capital. CIMB, Citigroup, DBS and JP Morgan are joint global coordinators and joint bookrunners. Resorts World Las Vegas, another wholly owned Genting subsidiary, raised US$350m from a 4.625% 10-year note last month. It priced the bonds at 97.7 to yield 4.919% or Treasuries plus 320bp. (1:37am)

BON
Quick read
Global

RATE FX ECON

BUZZ-Sterling support by recent trend low 1.3670 holds, for now

GBP/USD holds slight gain into NY close, +0.27% at 1.3742 Pair had rallied off Europe low 1.3670 to NorAm high 1.3776 USD soft on Powell US pandemic reopening concerns, position squaring pre-CPI GBP rallies off sub-1.37 support, more work to mend tech damage nL1N2M51A6 Below lwr 30-d Bolli 1.3664 bears gain eye a run toward 200-DMA by 1.3336 Bulls need to regain daily cloud (1.3942-1.3834) to slow bearish tide EUR/GBP slips 0.17% to 0.8670, Mon range 0.8694-42; EUR gains pared ahead of US CPI Tuesday GBP Chart: https://tmsnrt.rs/3wQKRFJ

RATE FX ECON
2 min read
Americas, EMEA
Paul Spirgel

Equities

Russian paper producer Segezha to list in Moscow

Russian paper producer and wood processing company Segezha is aiming to raise Rbs30bn (US$389m) floating its shares in Moscow. Segezha is a subsidiary of Russian conglomerate Sistema, which will remain the majority shareholder as most of the IPO will be primary funds to speed Segezha's growth through new investments and optimising leverage. There will also be a secondary greenshoe. Pre-marketing kicked off on Monday, and the whole IPO process will take about three weeks. JP Morgan, UBS and VTB Capital are joint global coordinators, and joint bookrunners alongside Alfa Capital Markets, Bank of America and Renaissance Capital. Feedback from pilot-fishing has been good, a banker involved said, with the ESG angle of the business standing out to investors, focusing on the company's use of recyclable materials. The deal is seeking to attract the usual European institutions that look at emerging markets and also some US funds that are able to buy local Russian deals. Revenue for 2020 was Rbs69bn, with almost three-quarters derived from export sales in foreign currencies. Around a third went to Europe, 28% to Asia and 6% to MENA. The hope is that Segezha's float can move the Moscow exchange on from GV Gold's IPO that flopped in March.

EQY
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EMEA
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BUZZ-USD/JPY caught between 10-DMA, minor Fib support by 108.99; UST yield key
Trustly to carry out SKr8bn-plus Stockholm IPO
MBS ROLL UPDATE – Wings remain cheaper as 2.5% roll heats further
CMBS: Freddie Mac SPC Series K-F107 US$964m+ *Public Announcement*
Majors Position Summary
EUR/USD Trader
PRICED - Kia Corp launches US$300m 3yr and US$400m 5.5yr greens
Kia returns to the US bond market with debut green bond
US GOVTS - Ho-hum $38 bn 10yr reopen sale prompts HF sales, buyers lurk
MBS - NY Fed buys the $1.5bn max UMBS15 1.5% and 2% for May settlement
LAUNCH - Genting Malaysia US$1bn 10yr at T+220bp
BUZZ-Sterling support by recent trend low 1.3670 holds, for now
Russian paper producer Segezha to list in Moscow
US GOVTS RRP participation increases, demand at $30.2bn
GUIDANCE - Sodexo US$1.25bn 2-part 5yr& 10yr
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