A combination of spiralling rates and fears about global growth saw emerging markets volumes slide. Those issuers that did venture into the primary market needed a bank with a global reach, experienced hands and a sure touch. Citigroup was that bank and is IFR’s Emerging Markets Bond House and Asia Bond House of the Year.
Collapsing issuance volumes, negative returns, a growing number of sovereigns needing to restructure their debt: 2022 was truly a horrible year for emerging markets bankers and investors.
Even seemingly basic transactions could turn into a minefield on any given day, such were the wild intraday swings. “It was the toughest year for EM since the global financial crisis,” said William Weaver, head of EMEA debt capital markets and syndicate at Citigroup. “Windows were brief and there were long periods when markets were closed.”
When dealflow did happen, it consolidated even more into the hands of the leading emerging markets bond houses. “Investor reach was key and team experience was absolutely critical in 2022,” said Weaver.
With so much uncertainty hanging over markets – from the fallout from Russia’s invasion of Ukraine, the lingering Covid-19 lockdowns in China and the volatility engendered by inflation and higher rates – borrowers needed best-quality advice.
Sometimes that advice was to stay put; at other times it was to try different currencies or the private markets; but it was also – when it came to public issuance in the core currencies – to hit windows when they opened.
No EM bond house was able to achieve this is in 2022 on a more consistent basis across the regions than Citigroup. The bank was ranked number one in the global EM bond league table, according to Refinitiv data, and was in the top two for every major region: Asia-Pacific ex-Japan and Australasia, Emerging EMEA and Latin America.
“We have risen to the challenge and clients have recognised that,” said Nick Darrant, co-head of fixed-income syndicate, EMEA.
In Asia, Citigroup did more than just stand its ground in 2022. The bank consistently found market windows for its clients and supported them as they sought the best possible funding opportunities.
“This year has been a challenging one. There has been a significant drop in activity,” said Adrian Khoo, co-head of Asia DCM, loans and acquisition finance. “We are figuratively taking people by the hand.”
As Chinese issuance plummeted, taking out what used to make up the majority of new issuance, other parts of the region became increasingly important.
Citigroup led offshore issuance from South Korea, which was one of the bright spots for Asia’s primary market, with an 11.7% market share.
Issuance from India was muted, but Citigroup helped open the year with a blockbuster US$4bn trade from Reliance Industries and brought a US$475m issue from Shriram Transport Finance, India’s only offshore social bond in 2022.
The bank also led deals across Asean, like the Philippines’ US$2.25bn offering in March that reopened issuance in the region following the Ukraine invasion, and Freeport Indonesia’s US$3bn multi-tranche debut in April that included a 30-year tranche, even as investors were becoming anxious about duration.
“We are one of the only banks that has a dominant position in every country we cover,” said Nitesh Dugar, head of South and South-East Asia DCM. “We want to focus on each and every country because markets will be cyclical.”
Citigroup’s leadership was supported by its role as an adviser to its core clients. The bank’s concentration on investment-grade borrowers, and its ability to guide them through difficult market conditions, meant issuers could lean on it when markets were turbulent.
“We are agnostic on loans or bonds,” said Benjamin Ng, co-head of Asia DCM, loans and acquisition finance. “We have to give the client the right advice within the market conditions.”
Those market conditions changed swiftly in 2022, with US Treasuries making sharp moves during bookbuilding. Citigroup had to pick the right windows and have the confidence to push ahead in uncertain conditions.
Raising the bar
In Latin America, those uncertain conditions placed a premium on innovation and versatility. “Volatility raises the bar to be more creative and to bridge disjointed and disrupted global markets,” said Chris Gilfond, head of Latin America DCM. “We drove success by drawing not just on bond market expertise but also the functioning of other markets.”
A deal for Pemex, for example, required applying trade finance expertise in the capital markets. In June, the Mexican oil company undertook an unusual transaction to repay about US$2bn of past-due invoices to certain suppliers and contractors in exchange for new 8.75% due 2029 notes, which subsequently totalled US$1.8bn.
Thirty-six out of the 39 participating suppliers elected to remarket 96% of the notes issued. The deal provided liquidity to the suppliers, while taking pressure off Pemex’s short-term debt.
“It was complex, innovative,” said Gilfond. “There was nothing else quite like it.”
Indeed, liability management was an important product for the region’s issuers and Citigroup was at the forefront. It acted on exchange and tender offers for several issuers from Argentina, Brazil and Mexico, such as Pampa Energia, Vale, Petrobras and Cemex.
Another big theme in Latin America was the growth of the domestic market. “We saw almost a 60% fall in international bond issuance but a 130% increase in local issuance,” said Gilfond. “We’ve never seen that rotation into the local product.”
Citigroup was equally active in the local market as in the international arena and could easily pivot between the two. Take its deal for manufacturer Kimberly-Clark de Mexico. The bank had been mandated for an international placement but with markets volatile, it became clear the local market would be a better option. The company changed tack mid-stream, raising Ps10bn (US$491m) in the process in the summer. “It was the same execution team; a different syndicate person but the execution and banking team was seamless.” said Gilfond.
It’s this flexibility to guide clients “not just monolithically into a product”, but after surveying the options that he believes makes Citigroup stand out.
Part and parcel
This client-centric approach applies across all of its EM businesses, including emerging Europe, Middle East and Africa. Samad Sirohey, head of CEEMEA debt financing, likened the bank’s role at times to a corporate finance adviser. He pointed to liability management-related deals for the likes of Oman, Angola and real estate company NEPI Rockcastle. “All of these transactions are part and parcel of a client-focused content-driven approach,” he said.
Citigroup’s breadth and depth of reach in the region is not in question. “We are unequivocally the number one bank by market share in the toughest of years. That point alone has enormous weight,” said Darrant.
But the bank was able to marry that market share with interesting transactions. It was involved in three of Turkey’s five visits to the international markets last year, for example.
The sovereign had a goal to raise US$11bn in the international bond markets in 2022, a task made difficult not just by international conditions but the domestic political scene too.
“Turkey is a classic example of a borrower that has a certain volume to clear. How do you execute a funding programme for them?” said Tommaso Ponsele, co-head of CEEMEA DCM. The key, he points out, is longevity of coverage and experience. “We’ve been doing two to three deals a year for Turkey for the past 25 years.”
The margins between success and failure in a year such as 2022 were wafer thin, especially for an issuer such as Turkey. The deals Citigroup was involved in, both in sukuk and conventional form, were critical, none more so than the issuer’s first of the year in February.
One misstep would have potentially derailed Turkey’s programme for the year. Instead the US$3bn five-year sukuk provided some much-needed breathing space. The choice of short-dated sukuk was acknowledged as a smart call even by bankers away from the deal.
One of Citigroup’s proudest achievements in the region in 2022 was regularly reopening markets. Iman Abdel Khalek, co-head of CEEMEA DCM, points to deals for Turkey, Nigeria and utility CEZ in March, in the wake of Russia’s invasion of Ukraine. She also highlights a hybrid by Majid Al Futtaim, the first in that product after several weeks of no activity.
“We are using our platform to facilitate transactions that wouldn’t otherwise come,” she said.
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