EM’s comfort blanket
With the pandemic scrambling markets, issuers had to place their confidence in a bank that could read the conditions and help them access vital funding on a grander scale than ever before. For its advice and leadership for borrowers in a turbulent and groundbreaking year, Citigroup is IFR’s Emerging Markets Bond House and Emerging EMEA Bond House of the Year.
It’s in the middle of a crisis that borrowers learn which banks they can rely on. In emerging markets, none stepped up more than Citigroup in that crucial period following the global outbreak of Covid-19.
In the first two months of 2020, Citigroup had a 7.1% market share of global emerging markets issuance volumes, according to Refinitiv data, which was in itself an impressive start to the year. But during March and April, when the coronavirus pandemic really started to bite, the US bank’s market share shot up to a remarkable 13.5% – no other bank can match that performance.
Even on a slightly longer timeframe – the four months between March and July, when the pandemic was rocking the financial markets – Citigroup had a bigger market share, at 10.4%, than any of its rivals.
“We increased our market share during the midst of the Covid peak,” said Samad Sirohey, head of CEEMEA debt capital markets. “That was when people wanted assurance.”
For Sirohey that success comes down to the firm’s commitment to the EM asset class. “We remain the sole bank that can claim a global EM franchise, especially in a year such as this,” he said.
The bank’s ability to hit every corner of the market is what makes it stand out. “There isn’t an investor base that we’re not able to tap into,” said William Weaver, head of EMEA debt capital markets. “That’s an important differentiator for us.”
Its greatest success last year came in Emerging EMEA and Citigroup wins the award for the best house for that region too.
Citigroup had league table accreditation of more than US$31bn in 2020, a record for any bank. Its consistency was remarkable with almost an equal split between CEE/Africa and the Middle East.
The bank got off to a fast start. January had opened with pricing power firmly in the grip of issuers seeking the lowest possible costs of funds. Citigroup helped the likes of Saudi Arabia to print a US$5bn triple-tranche offering, with all three notes pricing inside fair value.
But that momentum hit a brick wall in March, at which point issuers suddenly found the market shut. While the market would remain closed for many weeks for lower-rated borrowers, Citigroup helped Israel break the impasse in style with a US$5bn transaction at the end of March, a deal that included a century bond.
“In a scenario of divergence of market access, we not only delivered the size and liquidity required for financial buffers, but also duration where available,” said Sirohey. “We were the ones fighting for that argument and making the case for that kind of execution.”
Citigroup was close to Israel throughout a busy year for the sovereign, working with it on 11 tranches in public and private format and across currencies.
That pointed to a broader trend for Citigroup, with sovereigns relying on the bank for increased borrowing needs, typified by Estonia breaking an 18-year absence from the market with a €1.5bn trade. The US bank was called in more than once by the likes of Saudi Arabia, Turkey and Egypt, with the last of those becoming the first MENA sovereign to sell a green bond.
“After the market shutdown, our repeat mandate rate got close to 100%, showing recognition for our advice and us as a safe pair of hands,” said Sirohey.
Citigroup also tackled complex sales. It was one of two global coordinators behind the Galaxy US$4bn trade, which bankers say sets out a vision of how states in the Middle East will monetise project finance assets.
Galaxy is owned by a private consortium that holds a 47.7% stake in ADNOC Gas Pipeline Assets (AssetCo). The other main shareholder is Abu Dhabi National Oil Company, which has a 51% stake
AssetCo has 20-year lease rights to 38 gas pipelines that serve the emirate of Abu Dhabi.
While the offering provoked debates around the amount raised, given it will pay off a US$8bn bridge loan due in 2023, and the pricing levels, those discussions were inevitable given the nature and scale of the transaction.
“It was a unique undertaking, a transaction for a private company that was non-EMBI-eligible and not HQLA among local banks,” said Nick Darrant, co-head of EMEA debt capital markets syndicate.
“There was a lot of structure on the deal, and yet to get it rated flat to the sovereign was already remarkable. We took out half of the bridge in one fell swoop, with an incredibly high-quality order book.”
In Latin America, where it ranked second in the league tables, two trades highlight Citigroup’s credentials. In November it was a lead on Peru’s US$4bn triple-tranche trade that included the sovereign’s first century bond.
The deal came just days after the impeachment of the country’s former president Martin Vizcarra but again attested to Citigroup’s understanding of the bid for duration. The deal helped tackle Peru’s ballooning fiscal deficit thanks to the coronavirus.
The other trade was Ecuador’s US$17.4bn restructuring of its global bonds. The Andean nation was suffering not just because of the pandemic but also the collapse in oil prices.
“Ecuador was one of the worst hit by the pandemic,” said Christopher Gilfond, head of Latin America capital markets origination.
Citigroup’s extensive experience of Ecuador’s investors – having led more than 11 bond offerings for the sovereign since 2014 – made it a natural partner for the government.
First, Ecuador gained short-term respite from servicing interest payments that allowed it to attend to the pandemic and obtain time to engage with investors. Then in August it entered into an agreement with bondholders to swap 10 bonds maturing between 2022 and 2030 for three new amortising bonds maturing in 2030, 2035 and 2040 with average interest rates of between 5.20% and 5.50%.
The restructuring paved the way for Ecuador to reach an agreement with the IMF on a US$6.5bn Extended Fund Facility.
In emerging Asia, its focus has continued to be on the internationalisation of the region’s issuance through 144A transactions.
“Across the board there is a continued focus of Asian issuers on the international markets,” said Adrian Khoo, co-head of Asia debt capital markets.
A good example of the way that such an approach can benefit the region’s borrowers was insurer AIA’s US$1bn 10-year deal during the peak of the crisis – the first widely marketed bond deal by an Asian issuer after credit markets collapsed.
While Asian investors put in sizeable orders, it was US accounts that drove the deal. A book that peaked at more than US$6.4bn enabled AIA to print with a much smaller concession than the 50bp–75bp that other high-grade issuers in the US market were paying at the time.
One market where Citigroup lags its international rivals is China, although it did increase its market share considerably in 2020. But it says something about Citigroup’s business in other jurisdictions that the bank still ranked second in the league tables for Asia in 2020.
It is particularly strong in South-East Asia and led deals for Petronas (a US$6bn triple-tranche offering), Indonesia (two separate jumbo transactions, including a US$4.3bn Covid-19 relief issuance in April) and Bangkok Bank (the first South-East Asia Basel III AT1 that was marketed to US investors).
“This was the year where Asia was not just about China. There was a lot of activity in other markets too,” said Khoo.
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