Santander considered bidding €1.6bn for Popular weeks before collapse

Barclays, Citigroup, JP Morgan, Mitsubishi UFJ Financial Group and Royal Bank of Scotland were slapped with a combined €1.07bn fine by the European Union last week for rigging the foreign exchange market. The European Commission said the banks formed two cartels to manipulate the spot foreign exchange market for 11 currencies, including the US dollar, the euro, sterling, yen and Swiss franc. Banks have now been fined more than US$11bn in the past five years for FX misconduct (see chart). The EU’s fines came four years to the week after a handful of banks were fined US$5.7bn for similar offences in the spot FX market by regulators in the US and Britain, including more than US$2.5bn in penalties on Citi, JP Morgan, Barclays and RBS from the US Department of Justice for manipulating US dollars and euros. US, UK and Swiss authorities had already imposed big fines in November 2014 for FX manipulation. Other countries have also penalised banks, although for smaller amounts. Brazil’s antitrust watchdog Cade, for example, handed out R$183m (US$54m) in fines in December 2016 for rigging currency rates in Brazil to Citi, JP Morgan, Barclays, Deutsche Bank and HSBC. The FX rigging is part of a long list of past misconduct scandals, which have seen banks fined billions of dollars for their actions in interest rate benchmarks, mortgage mis-selling and other financial markets.   BANANA SPLIT The European Commission said FX traders formed cartels with different names in chat rooms. One was called “Three Way Banana Split”, “Two and a half men”, and “Only Marge”. The other cartel was called “Essex Express ’n the Jimmy” and “Semi Grumpy Old Men” in chat rooms. Citi was fined the most of the five banks - €310.8m - for the role of its staff in the first cartel. RBS was fined €249.2m and Barclays was fined €210.3m for roles in both cartels. JP Morgan was fined €228.8m for its role in the first cartel. MUFG was fined €69.8m for its role in the second cartel. The first cartel ran between December 2007 and January 2013 and the second operated from December 2009 to July 2012, the commission said. Traders from Swiss bank UBS were involved in both cartels, but the bank was not fined as it alerted the commission to the activity. It avoided a fine of about €285m. The commission said the other banks were given reduced fines for cooperating in the investigation, except for MUFG. Most of the traders in the chat rooms knew each other personally. “Essex Express ’n the Jimmy” was so named because all the traders except one called James lived in Essex, and they met regularly on the train to London. “These cartel decisions send a clear message that the commission will not tolerate collusive behaviour in any sector of the financial markets. The behaviour of these banks undermined the integrity of the sector at the expense of the European economy and consumers,” said Margrethe Vestager, the competition commissioner.   COORDINATED STRATEGIES The commission said its investigation showed traders in charge of FX spot trading at the banks exchanged sensitive information and trading plans, and sometimes coordinated trading strategies. It included details on customers’ orders, the bid/ask spreads on specific transactions, open risk positions and other trading plans. “The information exchanges … enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when,” the commission said. The other six currencies manipulated by the traders were the Canadian, New Zealand and Australian dollars, Danish and Norwegian kroner and Swedish kronor. The commission said its investigation into the cartels started in September 2013. It said it will continue to investigate other past misconduct in spot FX trading. RBS said its fine from the EU was fully covered by existing provisions. A JP Morgan spokesman said the bank was pleased to resolve the issue, which related to “the conduct of one former employee”. It said it had since made

The Central and Eastern Europe, Middle East and African bond market proved its versatility last week as issuers announced a variety of structures for investors to pour over, even as an escalation in the US-China trade dispute pushed markets lower. In the past, any negative headlines about China would have led to a blanket shut-down of the emerging primary markets. The uncertainties surrounding Argentina and Turkey, which also continue to loom over the asset class, would have only added to the doubts. But now, there are much deeper pools of money tracking the emerging markets, making the asset class much more resilient. “That’s why when Argentina or Turkey blow up they don’t take everyone down with them,” said one DCM banker. In a sign of how investors are moving beyond the headlines, last week several borrowers from the CEEMEA region sold or announced new issues. “We’ve had a lot of inflows this year, the asset class is back in vogue,” said a syndicate banker. “At the end of last year no one wanted to touch it. But as of the beginning of May we had US$20bn of net inflows for the year into hard currency [EM funds], which is a big amount of money coming in.” Although there were outflows of nearly US$3bn last week, according to EPFR Global, the technical picture remains supportive thanks to a relative lack of supply in the second quarter. Since April 1, gross EM sovereign issuance has been US$10.1bn, according to Citigroup. The deals that priced last week – US dollar bonds from Kenya and African multilateral TDB as well as a Green euro bond issue from Russian Railways and conventional euro deals from EM property developer NEPI Rockcastle and Czech railway operator Ceske drahy – got done without a hitch as investors cast aside any negativity about the global outlook or the specific issuers in the quest to buy some much-needed new paper. “Investors are discounting everything these days,” said a second DCM banker. Nothing illustrated this better than a US$2.1bn offering from Kenya, which sold a US$1.2bn May 2032 note issue at 8% and a US900m May 2027 bond offering at 7%. Demand reached US$9bn for the B+/B+ rated sovereign, even though some of the country’s key economic indicators, such as its debt-to-GDP ratio, are going in the wrong direction. “Kenya is not a great story from a fundamentals point of view, yet it got a US$9bn book. It’s proof that we have a market that is technically very strong, that we have a lot of liquidity and that the hunt for yield is very much alive,” said the banker. Kenya did make one concession to the more volatile backdrop by dropping a planned 31-year tenor and issuing the May 2027s instead in order to cut its overall cost of funding. “I was the one – or one of them – telling the Kenyans that issuing shorter will be cheaper, but I’m still surprised that they revised the maturity,” said Patty Cao, assistant portfolio manager at Merian Global Investors. Kenya was not the only African issuer in the market. Multilateral development bank TDB, formerly known as PTA Bank, issued US$500m of five-year notes in its first visit to the market since 2017. Meanwhile, South African lender Standard Bank was marketing a Tier 2 bond offering that is poised to be priced this week. And a new name is likely to enter the US dollar market in the next couple of weeks as South African microlender Bayport Management embarks on a roadshow ahead of a Social bond issue. “Africa is the barometer of appetite of international investors,” said the second DCM banker. Anecdotal evidence suggests that investors have 4%–5% of their portfolios in cash (because of cash inflows not yet deployed), much higher than the average 2.5%. “Unless you have a massive negative conviction on the market you are going to deploy it,” said the first DCM banker. And it’s not just international accounts that are buying. “It feels a deeper, more fragmented market with better local demand,” said a third DCM banker about the region. Bankers, though, are aware tha

UniCredit and ING are still showing signs of interest in Commerzbank after the collapse of the German bank’s merger talks with Deutsche Bank, although bankers said a deal remained a long shot and the financial merits were far from convincing. Bankers said UniCredit will face similar resistance and costs with large-scale job cuts that helped scupper the Deutsche-Commerzbank talks, which could erode synergy benefits. Capital, politics and deal-making complexities also diminish the chance of a takeover. “Commerzbank may be in play, but the hurdles to secure it are very high,” one banker said. Italy’s UniCredit has engaged Lazard and its banker Joerg Asmussen, the former German deputy finance minister, along with JP Morgan for a possible takeover, Reuters reported last week. The bank has long been advised by JP Morgan and Morgan Stanley. UniCredit played down what the advisers were doing, however. “No banking mandate has been signed related to any potential rumoured market operation,” it said in a statement. UniCredit has been interested in expanding in Germany, where it already owns HVB, a large German lender based in Munich, sources have said. UniCredit Chief Executive Jean Pierre Mustier is keen to reduce reliance on Italy, which investors say weighs on its valuation. It held €54bn of Italian government bonds at the end of March, but Mustier this month said it would reduce its exposure to Italy and sold a 17% stake in domestic online bank Fineco. But bankers reckon it will face resistance shifting much of its structure to Germany or with any plans to cut jobs there. A merger of HVB and Commerzbank could achieve hefty synergies, but job cuts would run into powerful German unions and be costly because of strict German employment laws. Cutting 10,000 jobs could cost about €2.5bn, one banker estimated. IN PLAY Other suitors are also circling after Commerzbank’s talks with Deutsche collapsed two weeks ago. Commerzbank is expected to set out a go-it-alone strategy at its annual shareholder meeting on Wednesday. Bankers said although the bank was clearly in play, the public nature of its break-up with Deutsche could deter it and the German government – which owns 15% of the bank – from encouraging talks with another partner in the near term. ING is interested, sources have said. Germany is ING’s second biggest market and it could also get decent synergies in Poland, but its digital strategy may have limited use of Commerzbank’s 1,000 German branches. A Dutch shareholder group last week called on ING to clarify how serious it is. Bankers said recent anti-money-laundering failings at ING would probably diminish appetite for a complex deal – for executives and regulators. France’s BNP Paribas and Spain’s Santander are among the other banks said to be casting an eye on Commerzbank – mainly attracted by its strong position with Germany’s Mittelstand. Its main attraction is it is cheap – its market value is €9.6bn and shares trade at just one-third of book value – but there’s a reason for that. The German market remains crowded and unprofitable, and requires rationalising and reform, which needs major political input, the banker said. “Even with Commerz trading at 0.4x TBV, we struggle to see a deal making sense,” analysts at Citigroup said in a note. They said based on a deal premium of 20% and conservative cost synergies of 20%–22% and 4%–8% revenue dis-synergies, a deal would be dilutive for both UniCredit and ING. The analysts said a deal for UniCredit would make more sense if it helps reduce its linkage to the Italian sovereign and gets synergies of 25% or more. They estimated the chance of a UniCredit deal for Commerzbank at 20%. UniCredit said it was “fully focused on the successful conclusion of its Transform 2019 plan, based on organic assumptions” and said it was on track to hit all its objectives. It plans to unveil a new strategy in December.

Reverse Yankee issuance volumes have gone past the €40bn mark, double the amount sold in the whole of 2018, as US companies look to lock in ultra-low coupons in the euro market. Europe’s bottoming rates environment means that corporates are able to borrow 10-year money with coupons of 2% and below. US companies have raised nearly €42bn in the year to-date in the single currency, according to IFR data, equivalent to about a third of all euro investment-grade issuance this year. Reverse Yankee supply was just €21bn in 2018, though in 2017 it was more than €55bn. Last week alone, FIS, KKR, Emerson Electric and Euronet all crossed the pond to raise euro debt. “The sheer coupon differential that euro corporate bonds offer versus US dollars is outstanding - simply because rates have fallen off a cliff in Europe,” said a DCM banker. But it is not just the more attractive coupons: US companies are also trying to cut their counterparty risk exposure with banks. Instead of swapping euros back to dollars, US issuers are now, by-and-large, keeping proceeds in euros. “There’s a very strong logic to do it,” the DCM banker said. DIFFERENT REASONS However, different US issuers are tapping the euro market for different reasons. Some companies see the advantage of having more than one debt investor base. Medtronic’s debut euro deal in March, for example – a €7bn six-tranche trade – was aimed at re-profiling the company’s debt pile, with now a quarter of its outstanding bonds denominated in the currency. And in rare instances, euros have become the first stop for companies looking to fund M&A trades. US fintech company FIS (Baa2/BBB/BBB) took €5bn out of the market in six tranches on Tuesday, but only tapped the US dollar market for US$1bn. It also raised £1.25bn in sterling. The currency split was down to the company’s net investment hedging needs, bankers said. FIS is buying UK company Worldpay. Still, the US dollar market remains generally the first stop for such funding, as it’s a deep and liquid market where companies can take all the debt financing they need out at once. “Euros can give US companies that have enormous maturity stacks in dollars a bit more flexibility,” the DCM banker said. “They also like the investor differentiation it brings – and for companies with European businesses, there’s a natural linkage.” MORE TO COME Despite the reverse Yankee deluge, buyers do not seem to be flagging, which is just as well as more US companies are looking to issue, said a syndicate banker. Most bankers say investors are “delighted” with the influx, especially as many of the US companies are debut issuers, including Altria, Medtronic and KKR. “A lot of the supply has come from relatively unusual issuers, so investors don’t have the problem of selling bonds to make room for a new deal,” said a second syndicate banker. For FIS, investors placed more than €14bn in orders across the six euro tranches and more than £3.25bn for the two sterling notes. The enthusiastic response allowed FIS to tap the market for more than originally planned: it had said on the roadshow it would be likely to issue €4bn-plus in euros, £1bn-plus in sterling, and the balance in US dollar bonds and commercial paper for a total US$11bn. “[FIS’s] deal is definitely a positive for the market,” a third syndicate banker said. “It may add some pressure on technicals but that’s not a major issue. They priced to sell and hopefully investors will get a few basis points out of it and be ready to buy again.” Average investment-grade euro corporate spreads widened by more than 10bp last week on an uptick in supply and volatility from an escalation of the US-China trade war before retracing a couple of basis points to finish Thursday at 79bp. Some of the larger, more liquid bonds gapped out by up to 20bp after volatility kicked in, the first banker said. “The volatility has created better flows, to be honest,” he said. “There’s more going on in the market – before it was a bit one-w

Two Asian issuers sold Samurai bonds last week, bringing the market back to life after a supply drought in April following the end of the bail-in bond boom. Malayan Banking on Wednesday sold the first Samurai bonds since the start of the Japanese financial year on April 1, attracting decent demand after a four-year absence with a ¥54.8bn (US$500m) three-tranche trade. The Republic of Indonesia quickly followed a day later with a massive ¥177bn (US$1.6bn) six-trancher, the biggest Asian public offering of standalone Samurai bonds on record. Maybank, Malaysia’s biggest bank by assets, filed a Samurai shelf registration last June, but market conditions were not necessarily ideal for the bank. Issuance last year was dominated by European banks raising funds that count towards total loss-absorbing capacity requirements, and Maybank was aware that its senior bonds might struggle to compete with wider spreads on TLAC bonds. TLAC issuance in yen came to a full stop in April as new risk-weighting rules took effect for regional banks, opening a window for Maybank. The bank and lead managers BNP Paribas, Daiwa, HSBC, Mizuho and SMBC Nikko were initially aiming to sell about ¥30bn, but demand comfortably beat that target. Some investors showed interest in the 10-year sector during the sounding period, enabling the issuer to go out along the curve. Maybank sold ¥39.8bn of 0.27% three-year notes, a ¥9bn 0.34% five-year, and a ¥6bn 0.58% 10-year. The respective spreads over yen offer-side swaps were 25bp, 30bp and 40bp with ratings of A3 by Moody’s and A by JCR. It was not easy to gauge fair value given that Maybank does not have a liquid senior benchmark in US dollars or euros. Initial guidance was hence released in wide ranges at 20bp–30bp over yen offer-side swaps for the three-year, 25bp–35bp for the five-year, and 35bp–45bp for the 10-year. To set the guidance ranges, leads used the issuer’s privately placed US dollar floaters and other Asian banks’ senior debt, as well as investors’ feedback. All three tranches were priced at the mid-point. RECORD SOVEREIGN Indonesia kept the momentum going on Thursday with a massive ¥177bn six-trancher, smashing the Philippines’ ¥154.2bn record with the biggest public offering of Asian risk in the Samurai market. (Malaysia printed a ¥200bn JBIC-guaranteed 10-year Samurai issue in March via a private placement.) Indonesia’s new trade demonstrates the following that the Asian sovereign has established as a regular issuer, having issued standalone Samurai bonds every year since 2017. “Through the non-deal roadshow, we have succeeded in increasing positive sentiment from both existing and new investors based in and outside Japan,” said the issuer in a statement. A banker on the deal said Indonesia even met regional investors. Such efforts paid off as regional participation increased to 9.4% from 6% on the previous deal. The issuer had intended to venture into longer maturities, but it was not easy. Indonesia had to drop a 20-year tranche when it sold Samurai bonds 12 months earlier. Marketing of this deal began with three and five-year tranches, with the longer seven, 10, 15 and 20-year tenors dependent on investor demand. Ultimately, the deal comprised six tranches – a ¥75.7bn 0.54% three-year, a ¥80.2bn 0.83% five-year, a ¥4.5bn 0.96% seven-year, a ¥7.6bn 1.17% 10-year, a ¥4bn 1.55% 15-year, and a ¥5bn 1.79% 20-year. The respective spreads over yen offer-side swaps were 52bp, 80bp, 88bp, 100bp, 120bp and 130bp. This compared with initial guidance ranges of 45bp–55bp, 75bp–85bp, 85bp–95bp, 95bp–105bp, 120bp area and 130bp area. The tranches suggest that Japanese investors still prefer shorter-dated emerging market debt, though they did place bigger orders for the five-year than for the three-year. Part of the reason for the bigger five-year tranche was that investors were aware of the issuer’s wish to issue longer tenors and were concerned it would cap the three-year. Ultimately, however, Indonesia decid

Proposals approved by European Union leaders last week will make it likely major investment banks will locate more of their European business outside the UK once it leaves the EU. The European Council adopted a range of measures just ahead of this week’s European Parliamentary elections, including “a requirement for third-country institutions with significant activities in the EU to have an EU intermediate parent undertaking”. This was first suggested three years ago to mirror the US requirement that foreign banks with substantial operations in that jurisdiction, such as Deutsche Bank, set up intermediate holding companies with full boards and sufficient allocated capital. European banks had complained that meant they had to allocate capital internally against their US subsidiaries, which is seen as more inefficient than holding it at parent company level in Europe. A major difference between the two requirements is that in the US it applies to subsidiaries, but not branches, of major banks with at least US$50bn of assets, whereas in the EU it will apply to all non-EU banks with at least €40bn of assets, whether in subsidiaries or branches. One regulatory lawyer said this showed the EU’s motivation was political rather than to make the financial system safer, since the branch assets would still have to be resolved by the bank’s home regulator. “This is a business grab by EU regulators who are less interested with this policy in preserving financial stability than optimising resolution planning,” he said. FRAGMENTATION RISK Etay Katz, partner at law firm Allen and Overy, said the move would inject more complexity into how banking groups were structured. “It will mean more regional regulations and accordingly less effective coordination at an international level. This regulatory ringfencing will mean resolution more frequently done via formal or informal multiple points of entry,” he said. Severin Cabannes, deputy chief executive of Societe Generale with responsibility for its investment banking, agreed. “There is a danger of further fragmentation with more regulations for different jurisdictions such as the eurozone, UK and US,” he said. That could mean a global systemically important financial institution might have to set up three or more separately capitalised companies to carry out its activities. BREXIT CONFUSION Non-EU headquartered banks will have three years to comply with the measures. Most are already well advanced in their planning, the regulatory lawyer said, with many setting up intermediate parent undertaking (IPUs). Brexit poses a problem though. If the UK does not leave, it would make sense to move fewer assets from London, where the majority of non-EU banks’ assets are held, and leave them in a London branch of an EU IPU. “US groups have already largely made their decisions regarding how they will structure themselves, with a holdco in Europe and possibly a second one for their broker-dealer depending on their home regulator’s preference,” he said. “Assets have not been moved across yet. The ramp-up may be smaller or bigger depending on the outcome of Brexit.” Law firm Shearman and Sterling said if the UK has left by the time the new rules apply, any assets in the UK held by non-EU banking groups would not have to be taken into account for the €40bn asset test. There could be some leeway too if the UK’s departure is agreed, but delayed. Britain’s Prudential Regulation Authority currently has no plans to make non-UK banks set up similar IPUs to cover their UK branches and subsidiaries, if the UK leaves. DIVERGING VIEWS Regulators on both sides of the channel have started to ponder what the precise arrangements in financial services regulation between the UK and the EU after Brexit will be. Sam Woods, head of the PRA and deputy governor of the Bank or England, said last week Britain would be reluctant to merely take detailed rules from its neighbour. “It is entirely natural to ask whether such an approach would m

Online lender Figure Technologies, led by former Social Finance CEO Mike Cagney, is looking to sell the first ever securitisation of assets originated on a blockchain platform. Figure closed a US$1bn lending facility with Jefferies and WSFS Institutional Services earlier this month, which will help finance its lending on home equity lines of credit through Provenance, a blockchain platform it developed in-house. Figure has used the platform to originate, finance and sell its HELOC product to banks, asset managers and credit funds, lending a total of US$100m since the third quarter of 2018. Now it hopes to roll out a securitisation of those loans by the third quarter this year using the same blockchain technology - a first in the industry and one that could be a game-changer. “We’ve already experienced the benefits of financing” on the blockchain platform, said Brian McGrath, head of the securitised markets group at Jefferies. “We’ve gained full transparency into the underlying assets, real-time access to loan performance and the process of accepting collateral has less friction than off chain.” Provenance was built to be leveraged by other ABS issuers, Peter Silberstein, head of capital markets at Figure, told IFR. Several companies are being lined up to make use of the technology, he said. As it stands, structuring a securitisation can be a lengthy, complex and expensive process: banks typically offer a warehouse line to a company which uses the facility to sell loans and then pools that debt into a securitisation to finance its business. Before the securitisation can be sold to investors, however, many third parties including rating agencies and lawyers have to undertake complex analysis of the loans. Blockchain technology could create a more efficient, centralised system where all participants have access to the same time-stamped data - effectively working as a common ledger. This could also make the process cheaper for issuers. “We believe that Provenance can be successful in liberating 60%-plus of these deal fees through smart contracts, data certainty and reduced audit and administrative burden,” said Silberstein. Most third-party services will still be required, but a lot more automation could be achieved in the market, said Charlie Moore, CEO of Global Debt Registry, which provides blockchain solutions for ABS market participants. “There are a lot of siloed services, trustees, custodians and warehouse lenders who are often passing around Excel files with no real certainty that everyone is looking at the same underlying data,” he said. But getting key industry stakeholders on board with using blockchain has been a slow process. “Look at how long it took the [loan] industry to accept digital loan applications,” said Moore. “It’s not straightforward. There are broader questions for investors, custodians and regulators, and how all of these parties are set up and willing to treat digital assets.” “We’re placing the roadmap to get there, but I see this being done in an evolutionary rather than revolutionary way over several years.” Moody’s has also recently warned the technology could introduce new risks. The rating agency worries that the private, permissioned blockchain platforms that are likely to be used in securitisation markets will increase dependence on central gatekeepers. That could increase concentration risk, the agency said in the report last month. Cyber attacks are also a concern, and there is “some degree of legal uncertainty on how to replicate a securitisation transaction’s contractual framework within a blockchain environment,” Moody’s said.

China’s State Development & Investment Corp took advantage of a flight to quality in a weak market last week to raise US$1bn from its second international bond issue. The A2/A/A+ rated state-owned enterprise, which reports directly to China’s State Council, attracted a final order book of more than US$4.7bn for the dual-tranche offering, despite a spike in US-China trade tensions. “We saw very high quality investors, including central banks and European investors, with total orders once peaking at over US$6bn,” a banker on the deal said. The thin supply from central SOEs this year and fair pricing contributed to the robust demand, he said. The Reg S deal comprised a US$500m 3.25% five-year Green tranche priced at Treasuries plus 110bp and a US$500m 3.75% 10-year conventional senior at plus 140bp. Final pricing for both tranches was at the tight end of final guidance of 110bp–115bp and 140bp–145bp, and 30bp tighter than initial guidance of 140bp area and 170bp area, respectively. Nomura’s trading desk put fair value at 107bp–110bp and 128bp–133bp over Treasuries for the two tranches, and said the limited supply from central SOEs made technicals supportive. Both tranches traded about 5bp tighter in the aftermarket. “With the strong books, SDIC could have priced the deal even tighter. But to strike a balance in regard to the volatile market situation, it has decided to price the deal at fair value,” the banker said. The new bonds had a very conservative negative concession of 1bp–2bp for both tranches, according to the banker. “Some recent new issues from investment-grade SOEs were priced with a 5bp–10bp negative concession,” he said. China’s central SOEs have reined in their overseas issuance since late last year in favour of lower funding costs onshore. Only China National Travel Service Group Corp sold dollar bonds in the first four months of the year, pricing a US$500m 3.5% three-year deal in mid-March. “For central SOEs, in terms of funding costs, the onshore bond market can save them more than 100bp. So the incentive for central SOEs to issue bonds offshore is not very strong. Only those with offshore refinancing needs or those with overseas projects are eager to go offshore,” the banker said. SDIC operates in 78 countries, including renewable energy and waste and water management projects that are eligible for green financing. Final orders for SDIC’s five-year Green tranche were over US$2.4bn from 104 accounts, including interest from leads. Asia took 79% of the notes and EMEA 21%. By investor type, 52% went to asset managers and fund managers, 34% to banks, 13% to insurers and sovereigns, and 1% to private banks and others. The 10-year tranche drew final orders in excess of US$2.3bn from 106 accounts, including interest from leads. Asia took 81% of the notes and EMEA 19%. By investor type, 68% went to asset managers and fund managers, 24% to banks, 7% to insurers and sovereigns, and 1% to private banks and others. Wholly owned offshore subsidiary Rongshi International Finance is the issuer and the state-owned parent is the guarantor. The notes, to be issued under a US$3bn medium-term notes programme, have expected ratings of A2/A+ (Moody’s/Fitch). Bank of China, DBS Bank, HSBC, and JP Morgan were global coordinators. They were also lead managers and bookrunners with Agricultural Bank of China Hong Kong branch, China Citic Bank International, China Construction Bank (Asia), Citigroup, CMB International, Deutsche Bank, Essence International, ICBC (Asia), Mizuho Securities, Natixis and Societe Generale. HSBC was sole Green structuring adviser. HSBC and CECEP Environmental Consulting were advisers on the Hong Kong Quality Assurance Agency Green Finance Certification. SDIC is an investment holding company and is 100%-owned by China’s State Council. Its core investments are in power generation, ports and rail, financial services and advanced manufacturing. The company made its debut international bond issue in April 2017 wi

ReNew Power is returning to a controversial funding structure to access the international debt capital markets, in a sign that recent rule changes may allow more Indian companies to borrow overseas. The renewable energy group plans to sell US dollar Green bonds through a special purpose vehicle, Zeus Energy Holdings, which will then use the proceeds to subscribe to rupee bonds issued by ReNew. The structure bears similarities to an earlier deal from February 2017, when Neerg Energy, a Mauritius-based entity, raised US$475m from offshore bonds and subscribed to ReNew’s offshore rupee bonds, but that route was effectively closed off later that year. The format was controversial because the central bank was not keen on the “orphan SPV” structure – neither Neerg or Zeus are controlled by ReNew. Although it did not specifically ban the fundraising route, the Reserve Bank of India’s restrictions on foreign investors and coupon limits meant the mechanism became impossible to use. Neerg was not a registered foreign portfolio investor and was only allowed to subscribe to Masala bonds, not onshore rupee bonds. When the RBI imposed a yield cap on Masala bonds in June 2017, that made it practically impossible for high-yield issuers to sell them. The orphan SPV structure has become viable again after the RBI in March opened a new investment channel to allow foreign investors to buy onshore Indian bonds. The “Voluntary Retention Route” permits foreign portfolio investors to make an aggregate investment up to Rs350bn (US$5bn) in corporate bonds, with a minimum retention period of three years. “Zeus is registered as a foreign portfolio investor and will buy the rupee bonds of ReNew Power via VRR,” said Girish Madan, director at Fitch. Foreign portfolio investors who invest through VRR will not be subject to minimum residual maturity requirements or concentration limits applicable to corporate bonds. “Under the VRR route, a single foreign portfolio investor can hold 100% in a corporate bond, which was not allowed earlier,” said Madan. The SPV-to-VRR structure has two big advantages to ReNew over other forms of overseas financing. It effectively allows the group to refinance rupee debt with US dollars, which is not permitted under the RBI’s recently relaxed external commercial borrowing rules. The all-in funding cap of 450bp over the benchmark rate also does not apply for the VRR route, said analysts. SUBORDINATED POSITION Zeus Energy is targeting US$350m from Green bonds for a tenor of 3.5 years, according to sources close to the plans. The proposed dollar notes are expected to be rated B1/BB– by Moody’s/Fitch. The expected rating for Zeus Energy reflects its subordinated position in terms of accessing the cashflow, said rating analysts. A key difference to the 2017 dollar bonds issued by Neerg Energy, which was rated Ba3, was the investors’ senior secured claim to cashflows from the projects in the restricted group entity, said Spencer Ng, senior analyst at Moody’s. Under the current format, “the holder of dollar bonds will have the security of Zeus Energy’s cash account, pledge on Zeus Energy shares and proceeds of non-convertible debentures of ReNew Power from time to time”, Ng said. But there is no restricted group. The credit risk of dollar bond holders is closely linked to ReNew Power; therefore cashflow issues at ReNew Power’s subsidiaries could potentially affect the ability of Zeus Energy to service the dollar bonds. As of December 2018, more than 80% of ReNew Power group’s total outstanding debt is at the subsidiary level, Moody’s said, potentially causing structural subordination issues for the new bonds. On March 9, ReNew Power raised US$375m of 5NC2 Green bonds at 6.67% from a more investor-friendly structure, rated BB–/BB by S&P/Fitch. A restricted group of solar and wind power facilities issued the senior secured notes with a guarantee from the parent company, ReNew Power. The unusual pricing represented the maximum yield it

A tie-up between London and Shanghai to allow Chinese firms to raise money on the UK stock market and British firms to sell shares in China is facing a long delay and is not likely to happen this year, sources close to the matter said. The Shanghai-London Stock Connect project started in 2015 and was embraced by the London Stock Exchange as one that would give Britain a lead in tapping Chinese investors who are currently not able to invest overseas. It would also allow companies on the Shanghai Stock Exchange to launch secondary offerings in London. Chinese companies listed domestically cannot have a secondary listing abroad at the moment, with the exception of Hong Kong, and investors cannot use currencies such as euros or sterling. The project will be important for London post-Brexit and could also help the London market combat a sharp fall in new listings across Europe. But sources said interest in the project in China has lost momentum, possibly because of difficulties introducing necessary changes to money-market rules as well as the delay to Brexit and the ongoing trade dispute with the US. The sources said what had looked like a short delay to the launch of the Connect scheme could now be indefinite. LSE and SSE officials say there is progress, however. “Various work around the Shanghai-London Connect is proceeding normally,” the SSE said in an emailed statement. “The timing of launch will be decided by the preparatory conditions of the issuers on both sides and the market. There’s no concrete timetable for the launch.” Charlie Walker, LSE’s head of equity primary markets, said the project “is now in the final stages prior to launch. We are just waiting for one final set of foreign exchange rules to come out and are hopeful that it will launch this year.” The delay comes as the uncertainty caused by Brexit remains unresolved and as growing trade tensions between the US and China continue to rattle investors. A launch ceremony for the project, scheduled for last December, was called off at short notice. A Chinese media report said at the time the delay was linked to the UK’s parliamentary vote on the Brexit deal, which was seen as creating market turbulence. Brexit has now been delayed until the end of October and the British government is still working to reach an exit agreement. The planned tie-up between Shanghai and London is the latest in a series of efforts by China to gradually bring its stock markets into the world trading system.

Kames Capital has hired Thomas Hanson as head of its high-yield fixed income team. Hanson joined from Janus Henderson, where he was high-yield portfolio manager running euro and global funds. Based in Edinburgh, he will co-manage Kames’s high-yield funds alongside Mark Benbow. The asset manager has also hired Eleanor Price as high-yield analyst. Price last worked for Baillie Gifford as a high-yield investment manager. Barclays has hired Ken Brown (left) from Nomura as chairman of its equity capital markets business for Europe and the Middle East. Brown has worked for 18 years in ECM and origination at Lehman Brothers and Nomura, and was most recently Nomura’s head of global finance for EMEA. He moved to Lehman in 2000 after 13 years at PwC, and joined Nomura when it bought parts of Lehman in October 2008. Brown is based in London, reporting to Tom Johnson, head of ECM for Europe and the Middle East. Citigroup has appointed Marc Luet (left) to head its operations in Australia and New Zealand, replacing David Livingstone, who was appointed CEO of EMEA earlier this year. Luet will report to Tim Monger, who was appointed interim Asia Pacific CEO last month after Citi veteran Francisco Aristeguieta left for State Street. Citi’s New Zealand country officer, Derek Syme, will report directly to Luet. Luet joined Citi in 1991 and was appointed to his current position as cluster head for Israel, Kazakhstan, Poland, Russia, Turkey and the Ukraine in 2017. Dominique Toublan has joined BNP Paribas as its chief US credit strategist. He will be based in New York and report to Rich Edelman, head of credit trading desk analysts in the Americas. Prior to joining BNPP, Toublan was a credit derivatives strategist at JP Morgan’s investment-grade strategy team. BNPP also named Reena Patel as senior credit trading desk analyst with a focus on investment-grade healthcare and technology, media and telecom sectors. She will be based in Boston and report to Edelman. She previously worked at Lehman Brothers, Nomura, Hutchin Hill Capital and Robert W Baird. RBC Capital Markets has appointed Rob McCormack to the newly created position of head of global markets for Australia. McCormack will have oversight of the equities and research divisions in Australia in addition to his current responsibilities as head of fixed income, currencies and commodities. McCormack will continue to be based in Sydney and reports to Rod Ireland, head of global markets for Asia Pacific. Kerr Finlayson will head NatWest Markets’ frequent borrowers group syndicate. Finlayson will start in the new role at the end of the month, a source said. He will join from RBC Capital Markets, where he worked as debt syndicate for sovereigns, supranationals and agencies since August 2012. Prior to working at RBC, Finlayson worked at HSBC, also on SSA syndicate. Hermes Investment Management has hired Kevin Roche as a director for private debt and CLOs. Roche previously worked at Allied Irish Banks. He will be based in London and work across Hermes’ private debt platform, which focuses on senior secured loans to mid-market companies. BNP Paribas Asset Management named Rob Gambi as global head of investments, based in London. Gambi, an asset management veteran with three decades of experience, will report to CEO Frederic Janbon. Gambi was most recently chief investment officer of Henderson Global Investors. ICBC Standard Bank has hired Florent Darlet as head of commodities structuring for Asia. Based in Singapore, he reports to Henry Luo, head of global markets structuring, and to Stephen Gargiulo, global head of fixed income, currencies and equities sales and structuring. Darlet joined from Sberbank, where he was based in Moscow in its structured products group. ICBC Standard Bank was created in 2015 through Industrial and Commercial Bank of China’s acquisition of a 60% stake in Standard Bank’s global markets business. DBS Group’s chief information officer and head of technology and operations is r

Goldman Sachs is ramping up its presence in South Africa and plans to offer onshore fixed income and foreign exchange products, and has teamed up with Investec for equities trading. Goldman has been offering advisory, wealth management and asset management services to South African firms for years and said it will expand its capital markets activities to take advantage of structural reforms that should drive economic growth. Its new products include foreign exchange and South African government securities, subject to regulatory approvals. It is in the process of applying for a banking licence to cover the new areas, a person familiar with the matter said. “We see tremendous opportunity to better serve local and global clients investing in South Africa and the wider region,” said Richard Gnodde, CEO of Goldman Sachs International. “Africa is a substantial and growing part of our international business and we are excited to connect clients globally with more opportunities across the continent through our expanded hub in Johannesburg.” Colin Coleman is the bank’s head of sub-Saharan Africa and the Johannesburg office. Goldman said it had agreed an exclusive cooperation agreement with Investec for equity trading in South Africa. That should allow both firms to extend their equity trading capabilities in the country and with African and overseas clients seeking to invest in the region, Goldman said. It said the arrangement will be launched in the next few weeks and will look to expand to additional African markets. Goldman’s expansion comes as some rivals have retreated from South Africa in recent years. Credit Suisse closed its South African business last year during the country’s first recession since 2009.   NEW BROOM Goldman is also applying for a banking licence in Japan as part of a push into cash management, a person familiar with the matter said last week. It will run the cash management business through a combination of banking licences and relationships with other banks, according to the Financial Times, which first reported the story. The Wall Street powerhouse is making changes under new CEO David Solomon, who replaced long-time boss Lloyd Blankfein in October. Trading revenues are struggling across the industry, and Goldman’s fixed income business has been one of the hardest hit. It reported a 20% fall in earnings for the first quarter with revenues from fixed income, currency and commodities and equities trading down 11% and 24%, respectively. Goldman has previously spoken about building a cash management business as part of its plan to pivot away from more volatile sources of revenue. Long dismissed as a low-margin, utility-like service, many of the world’s largest banks are making big investments in their cash management businesses, attracted by the substantial, stable revenues involved. Rivals have dismissed Goldman’s plans to build a cash management business, however, saying clients are often reluctant to switch banks and obtaining market share requires a large global network and massive investment in technology. Goldman has had some success branching out from its Wall Street roots, though. Marcus, its online retail bank that launched in 2016, has US$46bn in deposits, including 200,000 customers in the UK, where the product was launched last year.