Nuclear green bonds have finally ignited with Canada becoming the first sovereign borrower to add the emissions-free energy source to a green financing framework and EDF seeing hefty oversubscription for its inaugural international issue with a nuclear use of proceeds. The once controversial ESG product now seems set for take-off, though it is unclear whether a prominent green bond index will continue to exclude it. “It's a really great time, with all of [the issuers] being able to get recognition externally that nuclear is a key part of the energy transition,” said Jonathan Hackett, head of sustainable finance and co-head of the energy transition group at Bank of Montreal. Bellwether corporate green issuer EDF’s landmark deal last week “should create a strong precedent for repeat transactions in this format in Europe, building on a range of supply already seen [in Canada]”, said Arthur Krebbers, head of corporate climate and ESG capital markets at NatWest. Hackett pointed to “a continuous trajectory over the last five years” towards nuclear green bonds. This includes issues in 2021 from Canadian utilities Bruce Power and Ontario Power Generation and EDF’s inclusion last year of the category in its framework. Moves have accelerated this year. In June Finnish nuclear power company Teollisuuden Voima established a green bond framework that includes nuclear power. Bankers have also reported greater receptiveness from some previously sceptical European investors. November momentum Momentum has increased further in recent weeks through two heavyweight issuers. The framework for Japan’s “climate transition bonds” – the first sovereign transition instrument that is set for launch in February – showed “next-generation innovative reactors” as one of eight uses of proceeds. Credit Agricole has also added nuclear to its green bond framework. This allows it to lend to nuclear projects in three areas that meet the “substantial contribution criteria” of the EU Taxonomy of sustainable activities: pre-commercial stages of advanced technologies; construction and operation of new plants; and electricity generation from existing installations. Two second-party opinion providers, ISS ESG and Sustainalytics, each affirmed for the first time that nuclear use of proceeds aligns with ICMA's Green Bond Principles. Cicero Shades of Green, part of S&P, rated the Bruce Power and OPG issues as “medium green” in landmark opinions and gave the same rating to EDF’s revised framework in July 2022. “Nuclear energy brings some challenges, but it is a decarbonised form of power and we assess it as such in our second-party opinions. But we don’t automatically give a green shade,” said Christa Clapp, managing director for sustainable finance at S&P and co-founder of Shades of Green, citing checks on mitigation of risks. ISS ESG’s SPO for Credit Agricole added the qualification that in its view, nuclear is an "obstruction" to UN Sustainable Development Goals 7 and 15 (“Affordable and Clean Energy” and “Life on Earth”, respectively) while contributing to SDG 13 (“Climate Action”). Taxonomy trigger The new moves flow from the EU’s hard-fought agreement in July 2022 to include nuclear power in its taxonomy. Canada cited this in the update to its framework, launched originally in March 2022. Now the sovereign may finance several types of nuclear expenditure through green bonds, such as investments in new reactors; refurbishment of existing facilities; research and development; and “some” investments in its nuclear supply chain. Canada has committed to use no proceeds from its oversubscribed C$5bn (US$3.7bn) debut green bond for nuclear expenditure. The sovereign will issue a second bond under the updated framework “before the end of this fiscal year [in March]&
A wave of debt maturities from US high-yield bond and leverage loan issuers has broad implications for the asset class in coming years as borrowers and bankers seek ways to ease the pain of much higher refinancing costs in what remains an uncertain environment for junk-rated credits. Estimates for approaching maturities are certainly unnerving. “When you add up 2025 to 2027 and you round it to the nearest number, you get a US$1trn maturity wall,” a senior leverage finance banker at a US bank said. “The numbers are startling.” And while that includes stronger credits that, thanks to lower leverage and decent cashflows, can weather refinancing risks, a substantial number of shakier sub-Double B companies are likely to face challenging times. A recent Deutsche Bank report showed that those more speculative grade names will start to see a surge in debt maturities starting in the second quarter of 2025. Between then and the end of 2027, more than US$800bn in leverage loan and sub-Double B bond maturities are falling due, and that number rises to around US$1.5trn when 2028 is included, according to data provided by the German bank. Over just the next two years, such maturities comprise 9.2% of outstanding debt and over the next three years 22.3%. “Maturity walls two and three years out are well above historical averages as a percentage of debt outstanding,” Deutsche Bank analysts wrote. Refinancing rush The rush to get ahead of bond maturities has already begun. UBS strategists said that US junk-rated borrowers have largely dealt with 2024 refinancing risks, with just US$39bn and US$19bn in outstanding high-yield bond (mostly Double Bs) and leverage loan maturities, respectively. “If you haven’t refinanced for 2024, you are either so high quality that you have so many options you don’t worry about it, or you have been trying to refinance for five years and you can’t, and you will probably end up in a restructuring,” said the US banker. The painful reality is that corporates are having to print at much higher rates and relinquish ultra-low coupon debt that was issued in the rock-bottom rate environment before the US Federal Reserve in March 2022 started to rapidly tighten monetary policy. Some borrowers have hoped that the cost of funding would drop to less excruciating levels, said bankers. But so far that scenario has failed to play out, although credit has rallied in recent weeks as markets start to price in the possibility of US rate cuts. “We are starting to see a recognition that you can’t drive looking at the rear-view mirror,” said a banker at a European bank. “You have to accept these are the rates. They are double – sometimes triple – where companies originally financed themselves, but they are not far off where they have been historically.” For investors, this presents an opportunity, and they are regularly calling syndicate desks expressing interest in buying quality names they know must refinance with juicier coupons. "We haven’t had yields this high in what is a somewhat normal environment – only during tumultuous times,” said Kevin Loome, a portfolio manager at T Rowe Price. Getting creative As a result, borrowers have sought ways to lower funding costs at a time when holders of bonds and shares have refocused their attention on interest coverage ratios. “Interest costs are going higher, so leverage targets are going down if [companies] want the same interest coverage,” said Bill Zox, a portfolio manager at Brandywine Global. “Management is now focused on interest coverage.” Companies are leaning on secured debt, convertible bonds, private credit markets, amend-and-extend options and cash tenders to maintain interest coverage ratios that will satisfy stakeholders. Uber Technologies' US$1.5bn convertible bond last month was seen as a clever and cheaper way to refinance its
Shein has filed confidentially for a US IPO in what could be one of the biggest listings in New York next year, although the China-founded online fast fashion retailer is facing regulatory challenges and fierce competition. Goldman Sachs, JP Morgan and Morgan Stanley are leading the transaction. The fundraising size has not yet been set but the deal will be a mammoth transaction, given Shein’s last private round in May valued it at around US$66bn, said people with knowledge of the matter. Shein was earlier reportedly looking at a US$80bn–$90bn IPO valuation, down from the US$100bn private valuation it achieved in 2022. “Similar to many other IPO markets around the world, the US IPO market has been challenging this year. Some big listings did not work out very well,” said an ECM banker away from the deal. “However, given its size, Shein should be able to draw some attention from investors.” Founded in 2008 in Nanjing by Chris Xu, Shein specialises in womenswear and also sells men's apparel, children's clothes, accessories and other fashion items. Its products mostly cost less than US$20. The company moved its headquarters to Singapore in 2022 and registered a key business unit there after reportedly deregistering itself in China. The move was seen as a way to distance itself from China given political tensions between China and the US. Being a non-Chinese company could also mean Shein may not need approval from Chinese regulators for an overseas listing. “Shein may not need to get listing approval but most of its supply chains and warehouses are in China. There is still a risk if Chinese authorities are not happy with the listing plan,” said another ECM banker away from the deal. Criticism and scrutiny Shein’s ties with China have drawn criticism from US lawmakers over alleged violations of US import tariff laws, and its labour practices have also come under scrutiny. In June, the US House of Representatives' Select Committee on the Chinese Communist Party said Shein and Temu, a marketplace backed by Chinese e-commerce company Pinduoduo, are building empires around the de minimis loophole in US import rules – dodging import taxes and evading scrutiny on the millions of goods they sell to Americans. Under the de minimis rule, products under a certain value do not attract custom duties. Mike Gallagher, chairman of the committee, said at the time that the US needs to "take a hard look at this loophole that is being abused to tilt the playing field against American companies". US lawmakers have also called on the Securities and Exchange Commission to block the IPO until Shein can prove that it does not use Uyghur forced labour in its supply chain. Shein has denied the allegations. Rising competition from Temu, which also sells cheap products that are shipped directly from Chinese manufacturers, could put pressure on Shein’s IPO. Launched in September last year, Temu has become hugely popular in the US and other countries and its rapid growth has boosted the financial performance of Nasdaq-listed PDD Holdings, which trades as Pinduoduo. Shares in Pinduoduo jumped 18.1% on Tuesday after it posted forecast-beating third-quarter results. Revenue rose 94% on the year to Rmb68.8bn (US$9.6bn) and net income was up 47% at Rmb15.5bn. Shein’s float is set to be the largest by a China-founded company since ride-hailing giant Didi Global's disastrous US$4.4bn NYSE IPO in June 2021. Didi delisted from the US after a year under pressure from Chinese regulators. Last week, Zeekr Intelligent Technology, the premium electric car subsidiary of Geely Automobile, put its planned NYSE IPO of up to US$500m on hold amid weak market sentiment.
Shein has filed confidentially for a US IPO in what could be one of the biggest listings in New York next year, although the China-founded online fast fashion retailer is facing regulatory challenges and fierce competition. Goldman Sachs, JP Morgan and Morgan Stanley are leading the transaction. The fundraising size has not yet been set but the deal will be a mammoth transaction, given Shein’s last private round in May valued it at around US$66bn, said people with knowledge of the matter. Shein was earlier reportedly looking at a US$80bn–$90bn IPO valuation, down from the US$100bn private valuation it achieved in 2022. “Similar to many other IPO markets around the world, the US IPO market has been challenging this year. Some big listings did not work out very well,” said an ECM banker away from the deal. “However, given its size, Shein should be able to draw some attention from investors.” Founded in 2008 in Nanjing by Chris Xu, Shein specialises in womenswear and also sells men's apparel, children's clothes, accessories and other fashion items. Its products mostly cost less than US$20. The company moved its headquarters to Singapore in 2022 and registered a key business unit there after reportedly deregistering itself in China. The move was seen as a way to distance itself from China given political tensions between China and the US. Being a non-Chinese company could also mean Shein may not need approval from Chinese regulators for an overseas listing. “Shein may not need to get listing approval but most of its supply chains and warehouses are in China. There is still a risk if Chinese authorities are not happy with the listing plan,” said another ECM banker away from the deal. Criticism and scrutiny Shein’s ties with China have drawn criticism from US lawmakers over alleged violations of US import tariff laws, and its labour practices have also come under scrutiny. In June, the US House of Representatives' Select Committee on the Chinese Communist Party said Shein and Temu, a marketplace backed by Chinese e-commerce company Pinduoduo, are building empires around the de minimis loophole in US import rules – dodging import taxes and evading scrutiny on the millions of goods they sell to Americans. Under the de minimis rule, products under a certain value do not attract custom duties. Mike Gallagher, chairman of the committee, said at the time that the US needs to "take a hard look at this loophole that is being abused to tilt the playing field against American companies". US lawmakers have also called on the Securities and Exchange Commission to block the IPO until Shein can prove that it does not use Uyghur forced labour in its supply chain. Shein has denied the allegations. Rising competition from Temu, which also sells cheap products that are shipped directly from Chinese manufacturers, could put pressure on Shein’s IPO. Launched in September last year, Temu has become hugely popular in the US and other countries and its rapid growth has boosted the financial performance of Nasdaq-listed PDD Holdings, which trades as Pinduoduo. Shares in Pinduoduo jumped 18.1% on Tuesday after it posted forecast-beating third-quarter results. Revenue rose 94% on the year to Rmb68.8bn (US$9.6bn) and net income was up 47% at Rmb15.5bn. Shein’s float is set to be the largest by a China-founded company since ride-hailing giant Didi Global's disastrous US$4.4bn NYSE IPO in June 2021. Didi delisted from the US after a year under pressure from Chinese regulators. Last week, Zeekr Intelligent Technology, the premium electric car subsidiary of Geely Automobile, put its planned NYSE IPO of up to US$500m on hold amid weak market sentiment.
Reliance Industries has provided a master class in raising funds this year, raking in around US$14.45bn-equivalent from loans following the close of syndication of its latest dual-currency borrowing. The Indian conglomerate wrapped up a US$2.45bn-equivalent refinancing with 34 lenders, including 20 banks that joined in general syndication, proving its strong appeal despite the deal coming on the back of US$12bn in foreign and domestic currency loans it has already raised since the start of the year. Syndication of the latest borrowing closed in November, taking the tally of offshore syndicated and club loans for RIL and its Reliance Jio Infocomm unit to US$7.45bn-equivalent this year, including a US$3bn borrowing in March and a US$2bn add-on a couple of months later. Had it not been for the group’s financings, this year’s tally of foreign currency syndicated and club loans from India would have fallen far short of the US$18.59bn raised in 2022. As it stands, India Inc has raised US$16.09bn from 31 loans in the nine months to September 30, according to LPC data. DBS Bank was sole global coordinator on all three borrowings for RIL this year, which saw 57 other lenders participating. Loans bonanza The latest US$2.45bn loan comprises a US$2.1bn 4.25-year portion and a ¥49.6bn (US$350m) 5.25-year piece. The borrowing was originally signed in June with 14 senior MLAs at an all-in of around 140bp over SOFR for the US dollar piece. Among the 20 banks joining in general syndication that took around US$1.2bn-equivalent combined, Gunma Bank was the only one to come into the yen-denominated tranche for ¥1bn. Three others – IDBI Bank, Intesa Sanpaolo and Societe Generale – came into the US dollar portion for US$180m combined, having been absent on the two syndicated loans earlier in the year. Of the remaining 16 participating in the US dollar piece, nine were from Taiwan, taking US$320m. By comparison, Taiwanese lenders had been allocated US$927m in the US$3bn borrowing for RIL and Jio which closed in March, which had 55 lenders participating, including 40 that joined in two phases of syndication. That borrowing is the most widely syndicated loan from India. The add-on financing that followed comprised around US$997.7m-equivalent from 16 banks in June for Jio and a US$999.6m-equivalent facility from 18 banks in May for RIL. The terms of the add-on were the same as the US$3bn loan in March. The Indian conglomerate has also raised almost US$5bn from four ECA financings. Tapping capital markets It is not just in the loans world that RIL has a fan base. On November 10, it printed a Rs200bn (US$2.4bn) 10-year bond sold to long-only pension funds and insurance companies. The deal marked the second-largest offering in Indian capital markets, achieving the tightest spread and lowest coupon for a 10-year note from RIL. It priced at 7.79%, below some Indian government bonds and only slightly wider than state-owned REC’s October 2033 7.71% bonds printed on November 7. RIL’s offering was the largest single-tranche bond issued by a non-financial company in the domestic capital market and the second-largest deal overall after Triple A rated Housing Development Finance Corp raised Rs250bn from 10-year bonds in February, which priced slightly wider at 7.97%. “The paper [RIL’s latest bond] continues to trade at a slight premium in the secondary market after the deal was priced because of limited supply of bonds from the conglomerate in the rupee market,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap. RIL's previous domestic bond issue was in May 2020 when it raised Rs142bn in a multi-tranche deal, according to IFR data. RIL’s return to the domestic bond market after more than three years has led to speculation that group company Jio Financial Services, which was demerged from RIL and listed in August, may also follow with a Rs50bn–Rs100bn debt offering. Howeve
Fibra Uno on Wednesday failed to price the up to Ps15.56bn (US$902m) Mexican Bolsa IPO of its carved-out industrial property portfolio as the new vehicle was unable to secure the final sign-off for its REIT status from local tax authorities. Fibra Uno said it could have completed the Fibra NEXT IPO, given strong global demand, but it postponed the float to secure the participation of local Afores pension funds. "Even though we could have carried out the offer within the [price] range, Fibra NEXT is focused on going to market with the most diverse investor base, including key investors of Fibra Uno, such as Afores and institutional investors," Fibra Uno said when the deal was due to price. BBVA, Bank of America, BTG Pactual, Citigroup and JP Morgan secured significant international demand for the proposed sale of 277.8m shares marketed at Ps51–Ps56 each. Afores, local retirement fund administrators which are significant to domestic placements, were unable to participate because Mexican tax authorities had not signed off on NEXT's classification as a Fibra, the Mexican version of a REIT. Of the 277.8m shares on offer in the base deal, 60% were to have been placed with international investors and the remaining 40% with domestic investors, led by Afores. "The Afores have a very specific regime, with limits to how much of their portfolio can be dedicated to each asset class," said Jorge Escalante, a securities lawyer at Mayer Brown. "They have a Fibra bucket, and if they don't have that confirmation from the tax authority, their investment in the Fibra would have to be reclassified and that would set their buckets out of balance." Fibra Uno has until December 14 to respond to questions raised by Mexico's Tax Administration Service, according to an equity analyst not involved in the offering. “That small piece of paper is absolutely necessary,” said the analyst. “It's like trying to sell an aeroplane without the certificate of the maker. It's not going to fly.” Fibra Uno has promised to “return shortly with an update”, although the regulatory delay may push pricing into early next year, given the proximity of year-end holidays, bankers involved in the offering said. Fibra Uno did not respond to requests for comment. NEXT, which stands for Nearshoring Experts and Technology, was to have been a landmark transaction in Mexico, providing a way for international investors to play the growth of local manufacturing and distribution of goods across the Americas. At Ps15.56bn, the offering would have been the largest domestic IPO since the privatisation of Mexico City airport in 2018. Fibra ProLogis and Fibra Vesta completed equity raises earlier this year to help fund expansion as part of the nearshoring trend. As part of the IPO process, Fibra Uno and NEXT were planning to adopt an internal management structure, transitioning from an external structure that rewarded founding family shareholders with fees for management and acquisitions. The parent had undertaken a US$1.575bn bond exchange of its debt for NEXT debt, but that is conditional on completion of the IPO. NEXT owns 199 industrial warehouses, encompassing 77m square feet, across 19 Mexican states with most in the Mexico City metropolitan area. Barclays analysts wrote in November that Mexico has the potential to double its industrial real estate footprint on the back of nearshoring over the next decade or so.
Reliance Industries has provided a master class in raising funds this year, raking in around US$14.45bn-equivalent from loans following the close of syndication of its latest dual-currency borrowing. The Indian conglomerate wrapped up a US$2.45bn-equivalent refinancing with 34 lenders, including 20 banks that joined in general syndication, proving its strong appeal despite the deal coming on the back of US$12bn in foreign and domestic currency loans it has already raised since the start of the year. Syndication of the latest borrowing closed in November, taking the tally of offshore syndicated and club loans for RIL and its Reliance Jio Infocomm unit to US$7.45bn-equivalent this year, including a US$3bn borrowing in March and a US$2bn add-on a couple of months later. Had it not been for the group’s financings, this year’s tally of foreign currency syndicated and club loans from India would have fallen far short of the US$18.59bn raised in 2022. As it stands, India Inc has raised US$16.09bn from 31 loans in the nine months to September 30, according to LPC data. DBS Bank was sole global coordinator on all three borrowings for RIL this year, which saw 57 other lenders participating. Loans bonanza The latest US$2.45bn loan comprises a US$2.1bn 4.25-year portion and a ¥49.6bn (US$350m) 5.25-year piece. The borrowing was originally signed in June with 14 senior MLAs at an all-in of around 140bp over SOFR for the US dollar piece. Among the 20 banks joining in general syndication that took around US$1.2bn-equivalent combined, Gunma Bank was the only one to come into the yen-denominated tranche for ¥1bn. Three others – IDBI Bank, Intesa Sanpaolo and Societe Generale – came into the US dollar portion for US$180m combined, having been absent on the two syndicated loans earlier in the year. Of the remaining 16 participating in the US dollar piece, nine were from Taiwan, taking US$320m. By comparison, Taiwanese lenders had been allocated US$927m in the US$3bn borrowing for RIL and Jio which closed in March, which had 55 lenders participating, including 40 that joined in two phases of syndication. That borrowing is the most widely syndicated loan from India. The add-on financing that followed comprised around US$997.7m-equivalent from 16 banks in June for Jio and a US$999.6m-equivalent facility from 18 banks in May for RIL. The terms of the add-on were the same as the US$3bn loan in March. The Indian conglomerate has also raised almost US$5bn from four ECA financings. Tapping capital markets It is not just in the loans world that RIL has a fan base. On November 10, it printed a Rs200bn (US$2.4bn) 10-year bond sold to long-only pension funds and insurance companies. The deal marked the second-largest offering in Indian capital markets, achieving the tightest spread and lowest coupon for a 10-year note from RIL. It priced at 7.79%, below some Indian government bonds and only slightly wider than state-owned REC’s October 2033 7.71% bonds printed on November 7. RIL’s offering was the largest single-tranche bond issued by a non-financial company in the domestic capital market and the second-largest deal overall after Triple A rated Housing Development Finance Corp raised Rs250bn from 10-year bonds in February, which priced slightly wider at 7.97%. “The paper [RIL’s latest bond] continues to trade at a slight premium in the secondary market after the deal was priced because of limited supply of bonds from the conglomerate in the rupee market,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap. RIL's previous domestic bond issue was in May 2020 when it raised Rs142bn in a multi-tranche deal, according to IFR data. RIL’s return to the domestic bond market after more than three years has led to speculation that group company Jio Financial Services, which was demerged from RIL and listed in August, may also follow with a Rs50bn–Rs100bn debt offering. Howeve
With interest rates resting at their highest levels in years, the dilemma facing corporate finance chiefs right now is how worried they should be about the future. Bankers and consultants say the past year has brought about a revolution in the way corporate clients manage interest rate exposure arising from debt financing costs amid growing acceptance that rates are set to remain higher – and more volatile – for longer. That marks a departure from much of the previous decade when the ultra-low interest rate environment caused many to shelve hedging programmes. Corporate treasurers have now significantly increased their hedging activities, bankers say, leading to a flurry of activity for banks servicing these clients. "Corporate CFOs and treasurers are beginning to accept that interest rates will be higher for longer, which has ignited some interesting hedging activity," said Amol Dhargalkar, global head of corporates at advisory firm Chatham Financial. He noted that many corporates were previously reluctant to hedge as they feared locking in the peak of the hiking cycle should rates dramatically decrease. “Today though, more people are accepting the idea that that’s not actually going to happen,” he said. Managing interest rate exposure has moved towards the top of the agenda for many corporate treasurers over the past year as central banks have tightened monetary policy aggressively to cool inflation. Higher interest rates have sparked fears over the wall of corporate debt coming due over the next few years, which will now be more expensive for companies to refinance. Strategists at BNP Paribas said in a recent report that they expect defaults in the US to slowly increase in 2024 as some high-yield issuers fail to refinance debt. Market volatility is also fuelling hedging activity, bankers say. There have been 42 days this year when 10-year US Treasury yields have moved more than 10bp, according to LSEG data. That volatility means corporates, which price their debt off market interest rates, have had less certainty over their funding costs. Pre-issuance hedging has gained more traction among investment-grade companies as a result, allowing companies to lock in the interest rate component on bonds they plan to issue in the coming months to replace maturing debt. To do that, companies can enter forward-starting derivatives contracts that will insulate them from any market swings around the time of their planned refinancing. “It’s really tough for people to have any sense of projecting what their future [capital] structure and debt capital costs are going to look like [given rates volatility] and so pre-issuance hedging is allowing [corporates] a bit more certainty,” said Dhargalkar. Hitting pause? Not everyone is scrambling to hedge their rates exposure now that signs are emerging that central banks like the US Federal Reserve may be pausing their hiking cycles. Niall Coakley, managing director for corporate financing and risk management at Lloyds, said the fact that markets are now baking in interest rate cuts next year means some “clients seem more content to wait to see if rates do fall further before locking in". Given the conflicting tensions, an increasing number of corporates are looking to hedge through interest rate options to retain some flexibility, said Neil Parker, FX market strategist at NatWest. Those hedging through more interest rate swaps, meanwhile, favour shorter tenors of “more than two years but less than five” to avoid locking in rates for too long, he said. Alongside amending interest rate hedging programmes, some corporates have also been looking to protect themselves from foreign exchange risks, bankers say. October saw the highest recorded volume of electronic FX volumes at Lloyds, exceeding the previous record by 10%, said the bank’s head of global corporate FX sales, Anders Nilsson – which he said pointed “to inc
Fibra Uno on Wednesday failed to price the up to Ps15.56bn (US$902m) Mexican Bolsa IPO of its carved-out industrial property portfolio as the new vehicle was unable to secure the final sign-off for its REIT status from local tax authorities. Fibra Uno said it could have completed the Fibra NEXT IPO, given strong global demand, but it postponed the float to secure the participation of local Afores pension funds. "Even though we could have carried out the offer within the [price] range, Fibra NEXT is focused on going to market with the most diverse investor base, including key investors of Fibra Uno, such as Afores and institutional investors," Fibra Uno said when the deal was due to price. BBVA, Bank of America, BTG Pactual, Citigroup and JP Morgan secured significant international demand for the proposed sale of 277.8m shares marketed at Ps51–Ps56 each. Afores, local retirement fund administrators which are significant to domestic placements, were unable to participate because Mexican tax authorities had not signed off on NEXT's classification as a Fibra, the Mexican version of a REIT. Of the 277.8m shares on offer in the base deal, 60% were to have been placed with international investors and the remaining 40% with domestic investors, led by Afores. "The Afores have a very specific regime, with limits to how much of their portfolio can be dedicated to each asset class," said Jorge Escalante, a securities lawyer at Mayer Brown. "They have a Fibra bucket, and if they don't have that confirmation from the tax authority, their investment in the Fibra would have to be reclassified and that would set their buckets out of balance." Fibra Uno has until December 14 to respond to questions raised by Mexico's Tax Administration Service, according to an equity analyst not involved in the offering. “That small piece of paper is absolutely necessary,” said the analyst. “It's like trying to sell an aeroplane without the certificate of the maker. It's not going to fly.” Fibra Uno has promised to “return shortly with an update”, although the regulatory delay may push pricing into early next year, given the proximity of year-end holidays, bankers involved in the offering said. Fibra Uno did not respond to requests for comment. NEXT, which stands for Nearshoring Experts and Technology, was to have been a landmark transaction in Mexico, providing a way for international investors to play the growth of local manufacturing and distribution of goods across the Americas. At Ps15.56bn, the offering would have been the largest domestic IPO since the privatisation of Mexico City airport in 2018. Fibra ProLogis and Fibra Vesta completed equity raises earlier this year to help fund expansion as part of the nearshoring trend. As part of the IPO process, Fibra Uno and NEXT were planning to adopt an internal management structure, transitioning from an external structure that rewarded founding family shareholders with fees for management and acquisitions. The parent had undertaken a US$1.575bn bond exchange of its debt for NEXT debt, but that is conditional on completion of the IPO. NEXT owns 199 industrial warehouses, encompassing 77m square feet, across 19 Mexican states with most in the Mexico City metropolitan area. Barclays analysts wrote in November that Mexico has the potential to double its industrial real estate footprint on the back of nearshoring over the next decade or so.
Mongolia sold a popular US$350m 5.5-year bond on the back of a US$4.2bn book on Tuesday, as the frontier market sovereign continues its efforts to take out expensive debt. Initial guidance was the 8.75% area, and orders poured in to reach a peak of more than US$4.7bn. That allowed for aggressive tightening, and the 7.875% notes were priced at 99.017 to yield 8.10%. The bond sale was paired with a tender offer for the sovereign's 8.75% March 2024 notes, which closed on Monday evening New York time before bookbuilding for the new deal began on Tuesday morning in Asia. Some US$222.8m of the notes were tendered and repurchased for US$1,010 per US$1,000 in principal. The latest tender helped whittle away the notes, which originally totalled US$600m. Mongolia had already repurchased US$49.3m and exchanged US$158.137m for new notes in January. The outstanding principal is now US$169.8m. Mongolia issued US$450m 8.65% five-year notes in January and tapped the bonds for another US$200m soon after. But the government wanted to follow with another deal later in the year or early in 2024 to cover the rest of the maturing 2024 notes, as some of the January proceeds had also been used for 2023 maturities. An opportunity presented itself last month as Mongolia saw its bonds trading well and there was some stability in the US dollar market. Its 2028 notes issued in January have been trading up since the end of October when they were spotted at a bid price of 99.125. They were trading at 102.875 on Thursday. "The key strategy was really to mop up the 2024s to the largest possible extent," said a source close to the deal. The government was also aiming to reduce its costs, as the 2024s have an 8.75% coupon, he said. The sovereign was pragmatic in its approach. It decided on a modest, sub-benchmark size capped at US$350m, which helped fuel demand for the limited paper available, said a syndicate banker on the deal. The size allowed the issuer to fund the tender without taking on additional debt. Mongolia also opted for a 5.5-year tenor to make sure its debt maturities were spaced out, said a second banker on the deal. The January trade had produced a five-year bond maturing in 2028 and Mongolia wanted to push to 2029 for the new notes, she said. Economic update The government gave investors an economic update, discussed key infrastructure projects and relayed plans for keeping the economy moving should a pandemic or other catastrophe shut its borders again. Its debt management plans were also in focus. One other selling point was Mongolia's recent mineral security partnership with a number of Western countries which broadens its trading partners beyond neighbouring China and Russia, said the source close to the deal. "It's a good, solid story, which tagged on to the previous conversations with investors," said the source. "They're all very impressed by the debt management of the country." Investor feedback was generally in the 8.50% area ranging up to high 8%, said the source. Some US$1bn of indications of interest followed the roadshow. The bankers estimated a 5bp concession at the final price. Fair value Analysts at Nomura saw fair value at 8.10%–8.20%, putting the bonds 10bp–20bp outside the country's 8.65% January 2028 notes and its 4.45% July 2031s, including some new issue premium. At reoffer the book stood at US$4.2bn from 294 accounts. Investors from Asia-Pacific were allocated 46%, EMEA 32% and North America 22%. Asset managers and hedge funds took 93%, and banks, insurers and financial institutions 7%. They included a number of investors who had tendered the 2024 bonds, and who were given priority for allocations of the new notes. It also included some new investors from Continental Europe, said the source. HSBC and JP Morgan were the bookrunners for the 144A/Reg S trade. Frontier Strategies was financial adviser to the Mongolian government. The senior notes will be rated B/B (Fitch/S&P), in line with Mongolia'
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