Emerging Markets Bond House and Middle East Bond House: Citigroup

IFR Awards 2023
9 min read
Sudip Roy, Edward Clark

Truly global

No bank can match Citigroup’s consistency across global emerging markets and its ability to deliver for clients, whether big or small. Its experienced team knows how to navigate volatile markets and find pockets of liquidity when required. Citigroup is IFR’s Emerging Markets Bond House and Middle East Bond House of the Year.

It reads like a nightmare scenario for EM bond markets: 100bp of rate hikes by the US Federal Reserve; huge redemptions from dedicated bond funds; commodity price falls; and geopolitical headwinds.

Yet, despite all of that, there was about US$445bn of global EM issuance in 2023, according to LSEG data.

Still, until the tail-end of the year, it was a tough market. “There was a huge amount of volatility to navigate but we did so successfully,” said William Weaver, head of debt capital markets and syndicate for EMEA at Citigroup.

The US bank was the only bookrunner to rank in the top two for every region, according to LSEG data. Weaver said the bank’s success came down to several factors: finding different pockets of liquidity; prioritising the right type of issuer at the most appropriate time; and understanding the importance of liability management and ESG.

“We pride ourselves in pushing boundaries in EM and we did that again last year,” he said.

For Geoffrey Hunter, head of emerging markets syndicate, that market understanding comes from having a truly global platform and a team with deep experience. “Myself, Adrian [Khoo, co-head of Asia debt capital markets, loans and acquisitions] and William have been joined at the hip for a number of years.”

That experience has proved to be crucial at a time when global emerging markets are undergoing a huge shift. “There’s a piece of the EM world that’s under sanctions and another piece of the non-IG EM world is in distress – that leaves us with a smaller subset,” said Weaver.

And even within that subset there have been changes in the dynamics: sovereigns becoming even bigger funders post-Covid-19; the collapse in Chinese real estate issuance; the growth of the Middle East market; the emergence of niche areas, such as CEE banks raising funds to meet their MREL requirements; the acceleration of ESG in Latin America; and the emphasis that issuers have placed on liability management.

For Citigroup, though, its EM platform means it can adapt whatever the circumstances. In Latin America, for example, liability management played a huge role as part of the primary markets business. “LM is core to us and plugged into DCM,” said Adrian Guzzoni, head of Latin American debt capital markets.

One of the bank’s most important transactions was a liability management and recapitalisation programme which helped Brazilian airline Azul avoid a Chapter 11 filing. The bank also worked on all the Argentine exchange offers in 2023.

Another example of the bank’s ability to adapt came in Asia, in understanding how the rate hiking cycle affected demand from Taiwan, in particular from the life insurers, which had emerged in recent years as an important marginal buyer base of longer-dated deals.

Taiwanese demand hasn’t disappeared. “What we’re seeing now is demand from the banks and securities houses,” said Khoo. “So the demand is still there, but coming from a different direction.”

But the disappearance of demand from Taiwanese life insurers had certain consequences for the EM asset class. “We had a sea-change in where the bid for duration came from,” said Hunter, with US investors taking up the slack. Citigroup was well positioned to intermediate the flow.

The pattern will undoubtedly change again, and when it does Citigroup will be ready to take advantage for its clients. “It attests to the way we’re looking for pockets of liquidity and transmitting that through our system as best we can,” said Hunter. “It’s all part of detecting what investors are up to as they look for new opportunities.”

Understanding these flows is especially important at times of stress. Take Saudi Arabia’s Public Investment Fund’s debut sukuk offering, a US$3.5bn dual-tranche deal in October, which came shortly after geopolitical tensions in the Middle East were inflamed by the war between Israel and Hamas. A significant deal suddenly took on even greater importance.

“It became a three-day process. We announced the transaction on a Monday. There was a go/no-go on Tuesday. Ultimately the issuer wanted to see more [indications of interest] and opted to go on Wednesday, with a larger IOI book,” said Felix Weiss, head of CEEMEA DCM syndicate.

“They wanted to have certainty of all the Islamic accounts being onboard. On the Wednesday, we showed them three different price and size solutions. We showed [PIF] three different scenarios with different geographical distributions, linked to how much would be sold into the region and into Saudi Arabia and how much we would expect to place internationally.” In the end, the sukuk came flat to PIF’s conventional curve.

Balanced performance

That PIF deal was one of several the bank worked on from the Middle East, enabling Citigroup to also win Bond House for that region. “The Middle East has been the key driver of CEEMEA this year and we have been the house that has delivered the most balanced performance,” said Iman Abdel Khalek, co-head of CEEMEA DCM.

Citigroup worked on more Middle East sovereign public syndications than any other bank. These included placing Israel’s inaugural green bond, helping to arrange US$10bn of funding for Saudi Arabia and selling Sharjah’s first sustainable deal.

As the PIF deal highlighted, sukuk were the instrument of choice for a number of sovereign, bank and corporate issuers in 2023 and Citigroup placed itself at the heart of the deal flow.

Citigroup, for example, acted as lead on Saudi Arabia’s US$6bn dual-tranche sukuk, issued in May – the largest sukuk placed into international markets in two years.

The driving role that Citigroup has played in the sukuk market also overlapped with its distribution of FIG paper out of the Middle East. Citigroup helped to arrange the first US dollar AT1 following the collapse of Credit Suisse and the complete writedown of its most subordinated debt: a US$750m sukuk issued by Abu Dhabi Islamic Bank.

A key bookrunner on corporate deals, Citigroup proved pivotal in bringing Middle East companies to the bond market, advising borrowers to take advantage of the inversion in the yield curves to term out their funding.

“Our advice to issuers, given the yield curve inversion, has been to move from shorter floating-rate bank debt into longer bullet maturities and that was the key driver for transactions from the likes of DP World, MAF and Masdar,” said Abdel Khalek.

Citigroup was also involved in getting high-yield corporates into the market, acting as global coordinator and green structuring adviser on the debut bond from Five Holdings, an Emirati hotel owner and operator in need of financing for its acquisition of Pacha Group's hotels and clubs.

The Middle East business blended well with Citigroup’s activities across emerging Europe and Africa too. Tommaso Ponsele, the other co-head of CEEMEA debt capital markets, said what the team’s deals showed was “good judgement”.

“We’ve pioneered, or frankly changed, the method of execution, including utilising wall-crosses, utilising non-deal roadshows a lot more, selecting the right investors to wall-cross, bringing the right story to the fore,” he said.

A debut deal for Turkey’s TAV Airports at the start of December was issued following a three-day roadshow. “We had a high conviction so proactively chose not to wall-cross,” he said. In contrast, a deal for Turkish port operator Mersin a few weeks before did involve wall-crossing some investors.

These deals all played a part in what Weaver described as a “phenomenal year” for the bank.

“The EM business is part of Citi’s DNA and we’re here to stay,” he said.

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