Emerging Markets Bond House and Latin America Bond House: Citigroup

IFR Review of the Year 2013
8 min read
Paul Kilby, Sudip Roy

The bull rider

It was a year of great fluctuations, and no bank rode the volatility better than Citigroup, with its leadership in the corporate sector especially standing out. The bank is IFR’s Emerging Markets Bond House and Latin America Bond House of the Year.

This was the year of the bull in the emerging markets, but with a difference. Issuance volumes, deal numbers, and a record number of debut issuers all suggested a market running at near-peak levels; indeed, at times, it was getting a little too peaky.

But it was also a frantic, seat of the pants year. Just like the cowboy clinging on in a rodeo, there was a periodwhen some sceptics were wondering if the emergingmarketswould survive, never mind thrive.

Hanging over the markets was the question: will they or won’t they? That is, would the US Federal Reserve begin to taper its bond-buying? The yield on the 10-year benchmark Treasury note spiked more than 100bp as fears mounted of a cut sooner rather than later.

And yet, as the IFR Awards period closed, the Fed had still not moved – and emerging markets bankers could look back on yet another very successful year for the asset class in the primary markets.

One statistic illustrates this more than any other: corporates accounted for more than 50% of the year’s issuance.

That’s testimony not only to how well many of the governments in the world’s developing nations are managing their finances, but also how the EM bond markets have matured into a mainstream platform for fundraising.

Peerless corporate success

While every leading bank can point to a strong portfolio of corporate deals, none can match that of Citigroup.

The US bank’s share of corporate issuance was US$18.65bn, according to Thomson Reuters – US$3bn more than JP Morgan, over US$4bn more than HSBC and US$5.5bn more than Deutsche Bank.

Whether on the biggest deals for the best-known borrowers, such as Petrobras, or more credit-intensive trades for high-yield issuers such as Serbia Broadband, Citigroup played a central role in their success.

What stood out in particular was the bank’s presence on deals from debut corporate borrowers, which have accessed the market in record number.

Take emerging EMEA, where Citigroup was one of the firms that arranged Rosneft’s jumbo debut transaction in November 2012. The bank was also the only institution to be involved in the maiden deals from Russian petrochemicals firms EuroChem, Sibur and PhosAgro, thereby opening a new sector to investors.

In Turkey, where the corporate sector is still in its infancy, Citigroup can point to a distinguished portfolio comprising conglomerate Koc Holdings, glass manufacturer Sisecam, bottling company Coca-Cola Icecek and ports operator Mersin.

The latter deal, which printed in August, reopened the Turkish market after a four-month hiatus following social unrest in the country.

Other EMEA highlights include some of the toughest transactions, such as Israel Electric, which won IFR’s Bond of the Year for Emerging EMEA.

Elsewhere in the region on the sovereign front, one standout feature was its success in Africa, where Citigroup led deals for Morocco (including tap), Nigeria and Ghana (including an exchange of its 2017 notes).

Citigroup also proved itself in currencies other than the US dollar, doing international deals in roubles and lira as well as nine trades in euros, including Slovakian energy companies SPP and Eustream.

“Some are natural issuers, irrespective of the basis, such as SPP and Eustream,” said William Weaver, head of CEEMEA debt capital markets. “Others such as Gazprombank are more arb-driven and seeking investor diversification.”

In the Middle East, meanwhile, Citigroup arguably outshone even HSBC, with particular highlights including sukuk deals for Ras Al Khaimah, Emirates and DEWA.

Numero uno

Citigroup’s large market share of first-time borrowers, a sector that requires more work but pays bigger fees, is one of the reasons behind its success in Latin America, where it is also IFR’s Bond House of the Year.

The bank worked on several first-time issuers from Mexico, a country that is drawing considerable attention amid hopes that reforms will open up its economy and expand the number of borrowers coming to market.

These debut names included miner Fresnillo, autoparts maker Nemak, Grupo Cementos Chihuahua, and offshore oil services company Grupo R.

“If we are not doing well in inaugural deals there is a problem,” said Chris Gilfond, co-head of DCM for Latin America, where Citigroup led 17 debut deals.

While several banks were clearly nipping Citigroup’s heels last year, all with volumes just slightly south of the US institution’s, few could boast the number of deals or the geographical breadth claimed by Citigroup, which led 58 deals from 13 different countries.

“For international bonds we have been number one or two consistently, except in 2010 when the credit crisis caught up with us,” said Gilfond. “We are now back at our running rate – and running on all cylinders.”

The bank not only worked on trades from the region’s largest economies, Brazil and Mexico, but brought issuers based everywhere from Central America and the Caribbean through the Andean region right down to Argentina.

The bank ticked all the right boxes, involving itself not only with large frequent issuers, but also in liability management operations, high-yield corporates and local currency issues in addition to the debut names.

Citigroup certainly kept its hand in the flow business generated by large, frequent issuers, be it the hard to ignore jumbo US$11bn six-tranche trade from Petrobras, which was the largest ever corporate deal from the region, or deals from telecoms company America Movil, one of the region’s most sophisticated borrowers. Trades for the latter included a US$750m three-year floater and a euro tranche in July.

It also worked on America Movil’s dual-listed local peso deal, which opened the market to a broader set of investors and addressed the liquidity concerns that had long plagued the asset class.

Citigroup also made considerable inroads in taking LatAm borrowers to Asia, where it helped price several debut euroyens for Chilean issuers. These included Banco de Chile and Banco de Estado, which became the first issuer from the country to tap yen in recent years.

Asia landmarks

In Asia, Citigroup was at the heart of a number of landmark transactions, no more so than Vedanta Resources’ US$1.7bn dual-tranche trade in May, the biggest ever high-yield corporate bond from the region, outside of Japan.

Besides the impressive size, the bond also contrasted with the response Vedanta received from the US institutional loan market just weeks earlier. While loan investors were demanding higher pricing, bond buyers seemed interested even as the company tightened the deal.

The transaction comprised a US$1.2bn 5.5-year tranche, priced at 6.00%, and a US$500m 10-year portion at 7.125%.

Citigroup also made headway with the big Chinese state-owned enterprises. It was global co-ordinator on a string of deals, including two for Sinopec, one of which was the largest US dollar and euro dual-currency offering from China; Sinochem, which was the first perpetual deal from a wholly-owned state-owned corporate from Asia; and CNPC, a US$2bn triple-trancher.

“We’ve got a very solid position in the state-owned space,” said Adrian Khoo, co-head of Asia debt origination.

As it did elsewhere in the world, Citigroup was a leader when it came to debut transactions from Asia, making its mark with several inaugural deals for corporates, including State Grid Corporation of China, Bharti Airtel, SK Innovation and CIFI Holdings.

But Citigroup is not dependent on one sector or one country. “We’re running a balanced portfolio,” said Khoo.

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