Emerging EMEA Bond House: JP Morgan

The answer was an emphatic “yes”. Not only did the kingdom issue the biggest-ever publicly syndicated sovereign bond deal and the biggest transaction by any emerging markets issuer with its US$17.5bn offering from a US$67bn order book, but it also created a new benchmark for the Middle East region. The kingdom stunned the market with its trade as it broke with conventional wisdom in the way the transaction was split. Saudi Arabia (A1/A–/AA–) issued its record deal through three tranches: US$5.5bn of five-year bonds; US$5.5bn of 10-year notes; and a US$6.5bn 30-year tranche. Usually in jumbo trades, the longest-dated note tranche is the smallest, to keep costs down. But Saudi turned that thinking on its head to take advantage of demand for tenor at a time when global yields were severely compressed. Momentum for the 30-year tranche was driven by Asian accounts, such as life insurers, vindicating a decision to undertake a non-deal roadshow that visited Taipei and Singapore in July. Asian investors took 22% of the 30-year tranche, though US buyers got the most with 44%. Pricing on that note tranche was attractive for both investors and the issuer. The yield of 4.623% offered a more than 200bp pick-up over where 30-year Treasuries were trading at the time. Equally, the 4.5% coupon was inside the 4.625% that higher-rated Qatar (Aa2/AA/AA) paid for its June 2046s. Not that Saudi was comparing itself to Qatar. It had a range of proxies – across the region, across the emerging markets, across oil producers, and across debut sovereign issuers. While the 30-year tranche grabbed the headlines, the five and 10-year note issues were also well executed. The shorter-dated bonds drew plenty of interest from Middle East banks, albeit in terms of the actual allocation US and European investors got the biggest portion, with a combined share of 74%. The 10-year tranche, meanwhile, was like a traditional 144A/Reg S emerging markets offering at that tenor, appealing to all investor types. It was allocated mostly to institutional accounts from Europe and the US, though Middle East investors also got a decent chunk, taking nearly a quarter of the paper. All three tranches were priced 20bp–25bp inside initial marketing levels, with the bonds rallying by 0.5–1.5 points in the secondary market. That secondary performance was as important to the Saudis as the actual fundraising, given that it wants to build a sustainable borrowing programme. Indeed, the bonds had an impact across the region, helping to bring down the Sibor rate, muting worries about the riyal in the FX forward market and leading to a tightening of other regional issuers’ curves. Citigroup, HSBC and JP Morgan were the global coordinators on the 144A/Reg S transaction. To see the digital version of this review, please click here. To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com

JP Morgan outgunned its rivals in 2016 to win top spot in the league tables for the IFR awards period. The bank led 39 issues from 10 countries – the most among the banks jostling for business in the region. Many of the deals were marquee transactions, including Argentina’s US$16.5bn return to the international markets, Colombia’s first euro bond in 15 years and the US$2bn deal for Mexico City’s new airport – the largest Green bond ever out of Latin America. Yet while DCM activity took a surprise turn for the better in 2016, prospects had looked bleak at the start of the year. Oil prices were tumbling, and Brazil – the region’s main source of issuance in years past – was sinking further into recession. One bright spot was Argentina, where market favourite Mauricio Macri had won a surprise victory in the November presidential elections. But even there, challenges abounded as aggressive litigant investors held the government’s feet to the fire in what was a decade-long battle over debt payments. JP Morgan was thinking ahead, however, after having lost considerable market share in 2015. The bank’s DCM team rethought its strategy and widened the product mix to better reflect the tougher circumstances on the ground. Making good use of expertise in their broader global team, JP Morgan was able to win business among corporates that were often seeking to mend balance sheets rather than issue new debt for growth. “[We knew] this was going to be a year in which balance sheet repair trades, restructuring deals and some infrastructure financing would add to the mix of plain vanilla business,” said Lisandro Miguens, head of Latin America debt capital markets at JP Morgan. This was particularly true in Brazil, where JP Morgan won a seat at the table on restructurings for sugar company USJ and airline Gol. JP Morgan was also hired as an adviser for Samarco – the joint venture between BHP Billiton and Vale – as the company sought to renegotiate its debt in the wake of a deadly dam disaster. The bank served as lead on two deals from Petrobras as the oil company at the centre of a wide-ranging corruption scandal looked to address a wall of looming maturities. In June, Petrobras became the first Brazilian company to sell debt internationally in roughly a year, taking advantage of improving sentiment towards the country to come with a multi-tranche US$6.75bn bond sale and tender. And while the secondary performance caused consternation among investors at the time, leads were able to come back just two months later with a US$3bn deal that also took out short-term maturities and eased immediate refinancing risks. “The execution risks on these deals were gigantic,” said Miguens. “[Petrobras] faced huge amortisation towers, and this gave them breathing space.” JP Morgan was also well placed to take advantage of the pivotal turn in sentiment that took place in February. It reasoned early on that Latin American economies were starting to turn a corner, and that political changes in Argentina and Brazil were likely to bolster sentiment. Investors were more than ready to put money to work in a region that produced very little supply in 2015 but offered attractive relative value. “We started pitching our clients to get ready, as this was about to get better,” said Miguens. JP Morgan delivered that advice to Argentina’s new finance team in December, as the government mulled how best to pay holdout investors who had effectively kept the country locked out of the international capital markets for years. Confident that demand existed for a multi-billion dollar bond deal, the bank advised the sovereign to pay in cash rather than use new bonds with double-digit coupons. And JP Morgan ultimately won the mandate for Argentina’s historic return to the market. To see the digital version of this review, please click here. To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com

The nation was a default pariah, locked in a seemingly endless battle with hard-nosed hedge funds that rejected the terms of a debt restructuring – and wanted to be paid in full. But new President Mauricio Macri came to power, insisted on reaching a deal with the nation’s holdout creditors, and paved the way for Argentina’s return to the international markets. The result was a landmark US$16.5bn bond. “The Argentina trade is never going to be replicated,” said Dennis Eisele, head of EM syndicate at Deutsche Bank, a joint global coordinator with HSBC, JP Morgan and Santander. Even after Macri made it clear he wanted a deal with the holdouts, the assumption was that Argentina would pay them off wholly or partly in bonds – securities that were expected to come with hefty coupons. But Macri’s finance team took a different tack, betting on Wall Street’s advice that it could raise US$10bn or more from international investors at much lower costs. That was far from a foregone conclusion for a country still in technical default, and one facing significant legal challenges in the US courts. “Everything needed to take place with a perfect seamless execution in order to have a successful offer,” said Katia Bouazza, HSBC’s co-head of global banking for Latin America. The process also involved an unusual dual-stage settlement mechanism to ensure that a pari passu injunction handed down by the courts was lifted by paying the holdouts first. Argentina set off on a five-day roadshow to market a deal comprising three, five, 10 and 30-year tranches in an effort to appeal to the broadest audience possible. Many investors vowed they would never buy a 10-year from Argentina for less than 8%. But yet again, the sovereign defied expectations. Not only did it secure a 7.5% yield on that tenor, but it generated a truly remarkable US$69bn of demand for the entire deal from over 800 accounts. That book still stands as the largest in emerging markets history, even surpassing the US$67bn in demand seen on Saudi Arabia’s US$17.5bn bond in October – the deal that broke Argentina’s record for largest EM deal ever. And the deal helped re-establish Argentina on the international stage as a nation open for business. “This was a huge step forward in terms of the confidence of investors to continue to put money into the country,” said Sergio Lew, head of US credit markets at Santander. To see the digital version of this review, please click here. To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com