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DECEMBER 19 2020 ISSUE 2364 www.ifre.com BONDS US junk issuers make late-year push amid strong demand 04 EQUITIES Indian ECM joins year-end rush as it sees Rs95bn of deals in a week 06 LOANS ������������ lenders warm to data centre credits 08 EMERGING MARKETS Crucial Laos ���������������� hangs in the balance 09 Casino collects its winnings: French retailer raises €625m from bond/loan combo Clearing rollout boosts CDS options market: US launch comes after European surge LSE enjoys busy year ahead of listings review, as global ECM hits US$1trn 1 IFR Cover 2364.indd 1 18/12/2020 19:00:43 Investing in ICO Social and Green Bonds means being part of the country’s sustainable transformation and is synonymous of future profitability. ICO is playing a prominent role in ensuring the credit flow to the business fabric and mitigating the economic and social impact of the Covid-19 pandemic in Spain. ICO SOCIAL AND GREEN BONDS Supporting sustainable growth in Spain The Kingdom of Spain’s Financial Agency 1 Upfront � OPINION INTERNATIONAL FINANCING REVIEW International Financing Review December 19 2020 So long, 2020 A s the end of the year approaches, bankers and other ������������������������������������������������������� �������������������� ��������������������������������������������������������� ����������������������������������������������������������������� ���������������������������������������������������������������� �������������������������������������������������������� �������������������������������������������������� ������������������������������������������������������ ������������������������������������������������������������ ���������������������������������������������������������� ����������������������������������������������������������� ������������������� ������������������������������������������������������� ���������������������� �������������������������������������������������������������� ������������������������������������������������������������� ��������������������������������������������������������� �������������������������������������������������������������� ������������������������������������������������������� �������������������������������������������������������������� ����������������������������������������������������������� ��������������������������������������������������������������� �������������� ��������������������������������������������������������� ������������������������������������������������������������ ���������������������������������������������������������� ������������������������������������������������������������� ������������� ������������������������������������������������������������ ����������������������������������������������������������� ������������������������������������������������������ ���������������������������������������������������������� ���������������������������������������� ������������������������������������������������������������� ��������������������������������������������������� ����������������������������������������������� ������������������������������������������������������� ������������������������������������������������������������ ������������������� Trillion-dollar ECM G �������������������������������������������������������� ����������������������������������������������������� ���������������������������������������������������� �������������������������������������������� ��������������������������������������������������������� ���������������������������������������������������������� ������������������������������������������������������������ ���������������������������������������������������������������� �������������������������������������������������������� ��������������������������������������������������������� ������������������������������������������������������� ������������������������������������������������������������� �������������������������������������������� ������������������������������������������������������������ ���������������������������������������� ����������������������������������������������������������� ������������������������������������������������������� ������������������������������������������������������� ������������������������������������������������������ ����������������������������������������������������� ���������������������������������������������������������������� ������������������������������������������������������������� �������������������������������������������������������������� ������������������������������������������������������������������ ���������������������������������������������������������� ����������������������������������������������������������� ������������������������������������������������������������� �������������������������������������������������������� ����������������������������������������������������� ������������������������������������������������������������ ������������������������������������������������������ ������������������������� Soft target “I ������������������������������������������������������������ �������������������������������������������������������� ���������������������������������������������������������������� ���������������� ��������������������������������������������������������� ��������������������������������������������������� �������������������������������������������������������������� ������������������������������������������������������������������ ������������������������������������������������������������ �������������������������������������������������������������� ����������������������������������������������������������� ���������������������������� ��������������������������������������������������� �������������������������������������������������������������� ��������������������������� ������������������������������������������������������������� ������������������������������������ �������������������������������������������������������� ��������������������������������������������������������� ���������������������������������������������������������� ��������������������������������������������������������������� ����������������������������������������������������� 2 IFR Upfront 2364 p1.indd 1 18/12/2020 19:52:09 International Financing Review December 19 2020 2 Top news US junk issuers’ late push 04 Global ECM tops US$1trn 05 London’s busy ECM year 06 Clearing rollout boosts CDS options market � People & Markets US launch comes amid steep rise in European clearing volumes BY CHRISTOPHER WHITTALL Major banks are hopeful the introduction of central clearing for US credit-default swap index options will spur further activity in this market after the two main central counterparties for CDS have rolled out services in recent weeks. ICE Clear Credit and LCH’s CDSClear are now both live clearing options on IHS Markit’s CDX North American investment-grade and high-yield indices, the major credit derivatives benchmarks tracking US corporate debt markets. Funnelling derivatives through clearinghouses reduces the regulatory capital banks must hold against these trades and can also lower the amount of margin investors must post against their positions. European CDS options clearing volumes at LCH have rocketed this year and banks are hopeful similar momentum can be built in the even larger US credit derivatives market. “The CDS options market is maturing and we have very high hopes that clearing will lead to widespread adoption of the product next year,” said David Goldenberg, head of US credit derivative trading at Credit Suisse. “Clearing will make trading options less balance-sheet intensive for banks, pricing will be more transparent and there’ll be a standardised expiry protocol that should help more investors become comfortable trading the product.” Clearinghouses act as middlemen in derivatives trades, preventing losses spreading ������������������������������� one of the counterparties to a deal defaults. Over 80% of CDS volumes are now cleared, according to data from the International Swaps and Derivatives Association, up from about 50% at the start of 2014. CDS indices – the most actively-traded type of product in these markets with over US$7trn in contracts outstanding, according to the DTCC – have accounted for the vast majority of those clearing volumes. Moving CDS index options into clearing was a lower priority given the market is far smaller at about US$848bn. Trades are also much shorter- dated, typically three months in ������������������������������� for indices, meaning these exposures attract less regulatory capital for bank trading desks. Casino collects its winnings despite Rallye overhang � Bonds/Loans Retailer takes advantage of post-vaccine euphoria in bond and loan markets BY PRUDENCE HO, ELEANOR DUNCAN French supermarket CASINO eased some pressure on its capital stack last week with a hugely popular ��������������������������� advantage of an investor dash for risk assets and the recent sale of its Leader Price stores. The company, rated B/B3, raised €625m via a new bond and an add-on Term Loan B. Proceeds from the deal will help fund a tender offer for bonds with maturities from 2021 to 2025. Leads were able to slash pricing levels and upsize both components during execution – despite the overhang of a big debt repayment that parent company Rallye has to make in 2023 – as investors proved willing to consign the group’s earlier struggles to history. “Casino has had a credit issue with low cash and upcoming maturities,” said a banker familiar with the deal. “It still feels like a high beta credit, but it has become more mainstream. ����������������������������� the company has gone through has set them up for a more stable capital structure.” The unsecured bond (rated ������������������������������� deal in that format since January 2018. With Casino’s documents only allowing for €280m more in secured debt, according to the banker, it was important that the retailer returned to the bond market with an unsecured offering. The timing could hardly have been better. Post-vaccine market euphoria has seen investors pile into riskier assets, which has �������������������������������� large, higher-yielding capital structures. Indeed, as levels compressed in the secondary market in tandem with demand for the new issue, leads were able to crank in pricing no fewer than four times on both the bond and loan during execution. On the €400m January 2026 non-call two bond that meant pricing was tightened by an incredible 87.5bp from an initial ������������������������������ yield of 6.625%. And yet despite those revisions, leads were still able to increase the size from an initial target of €300m. “There is nothing else out there [in the market] so if investors want assets [Casino] is the only game in town – and it’s a beta-driven market” said a high-yield investor about the big price revision. “Accessing the unsecured market is pretty crucial for Casino and they needed to make it work. I felt like banks put a wider number than they needed to, and they’ll be pleasantly surprised.” CASINO’S UNSECURED BONDS PAVE WAY FOR REFI BID PX FOR CASINO’S 4.498% MARCH 2024s Source: Tradeweb 65 70 75 80 85 90 95 100 02/12/20 02/11/20 02/10/20 02/09/20 02/08/20 02/07/20 02/06/20 02/05/20 02/04/20 02/03/20 02/02/20 02/01/20 “We’re increasingly finding that the credit options space is a more efficient way of hedging than standard credit indices” 3 IFR Top news 2364 p2-10.indd 2 18/12/2020 18:31:39 International Financing Review December 19 2020 3 For daily news stories visit www.ifre.com @ India joins ECM rush 06 Lenders warm to data centres 08 Laos deal in the balance 09 Even so, the market has ���������������������������� past decade, reaching US$1.1trn in March at the height of the ������������������������������ up from US$153bn nine years ago shortly after the DTCC started publishing CDS options data. SIGNIFICANT SAVINGS And experts note there are still ������������������������������ from clearing options positions. Banks don’t have to set aside as much capital facing a clearinghouse on a trade compared with other counterparties, while investors who put on multiple CDS trades with various banks can net down exposures and lower the amount of margin they must post. “CDS options are already very liquid, with high volumes and with a large and varied group of clients trading them. Clearing ���������������������������� even further the range of clients that can participate in that business and improve the ������������������������������� Paillat, global head of credit index and options trading at JP Morgan. LCH started clearing European CDS index options in 2017 and volumes have increased to €70bn this year from €17bn in 2019 as liquidity in the inter-dealer market has grown. Frank Soussan, head of CDSClear, said three to four clearing banks are planning to start offering options clearing services for their clients in Europe next year now that liquidity has been established in the inter-dealer market. That could provide ������������������������� given that there are three to four client trades for every interbank trade, he said. “Clients want to see liquidity in clearing before doing it themselves,” said Soussan. “Now we have liquidity for cleared options in Europe, it’s time for clients to come in. We could see volumes in the market increase �������������� There are already signs that a wider range of investors are embracing options, which have proved to be particularly popular in times of market stress. Volumes surged during the March turmoil in credit markets and also increased around the US elections, traders say. ��������������������������� that the credit options space �������������������������� hedging than standard credit indices,” said Fraser Lundie, head of credit in the international business of Federated Hermes. “We found our unconstrained fund outperformed in March because it was able to ������������������������� volatility, not just in credit spreads.” � While orders dropped throughout the process, leads still ended up with a book on the bond that was around four times covered, said a second banker familiar with the deal. “The price was really driven by the secondary levels, in what is arguably one of the largest capital structures in Europe away from telecom names,” said the second banker. Casino last hit the euro high- yield market in November 2019, when it priced a €800m senior secured January 2024 note. That ������������������������ purposes. LOAN GROWS TOO Casino also increased the size of the loan component of last week’s deal – to €225m from €200m – with the upsized loan pricing with a 99.75 OID, cutting 175bp–225bp from launch of 97.5–98.0. The TLB was an add-on to the company’s €1bn senior secured loan which priced in November 2019 – also ��������������� The company’s recent sale of its Leader Price stores for nearly €650m also helped to provide a tailwind for both tranches, as concrete evidence of its deleveraging plans. The Leader Price sale was crucial to the timing of the capital structure trade, said a third banker familiar with the deal. Had the market not been there, leads would have targeted the deal for next year. Other retail credits have opted to issue after the New Year in order to woo investors with Christmas trading numbers. “The market expectation is that food retailers will have a pretty good Christmas,” said the third banker. “On that basis do you print now or wait? We decided to sell on the outlook.” TENDER PLACES Proceeds from the bond deal, the Leader Price sale and the loan add-on, plus other cash, will help fund a tender offer targeted at €1.2bn. The company is targeting bonds which mature between 2021 and 2025. The tender offer also helped to drive demand for the trade. “Part of the strategy all along was to tender for 2024 and 2025 bonds in a way that would help investors crystallise some meaningful gains that they have achieved with the latest rally,” said the second banker. Casino’s 4.498% 2024s and 3.58% 2025s from the company’s unsecured EMTN programme were bid in the 70s earlier this year, and are now trading in the 90s. “In a market that is starved of new paper, a new issue is a logical next step – especially if it allows investors to crystallise ������������������������������ coupon instrument,” said the second banker. Still, hovering over the trade was parent Rallye’s cash requirements after the end of its sauvegarde – or court protection – which will likely see Rallye make around €1.3bn of repayments in 2023. The worry is that Casino would be on the hook for a substantial dividend payment at that point. “With this company and its relationship with Rallye, there will always be questions – it is unavoidable,” said the second banker. “But what is key is that Casino is pursuing an independent policy, where the objective is to delever the balance sheet. They have proven their ability to do so.” With those issues in mind, bankers structured a covenant package for the unsecured bonds that was similar to Casino’s 2019 secured deal – putting in place dividend restrictions and limitations on debt and restricted payments. “Obviously when 2023 comes, �������������������������������� [to repay the debt], but it is not automatically a given that Casino needs to pay that.” BNP Paribas and JP Morgan were global coordinators and physical bookrunners on the bond, while Credit Agricole and HSBC were joint global coordinators and joint bookrunners. BNP Paribas, HSBC and Credit Suisse led the loan, alongside Credit Agricole, Natixis, Santander and Societe Generale. � CDS OPTIONS CLEARING VOLUMES AT LCH'S CDSCLEAR €bn Source: LCH Note: *year-to-date as of Dec 14 0 10 20 30 40 50 60 70 80 2020* 2019 2018 2017 3 IFR Top news 2364 p2-10.indd 3 18/12/2020 18:31:40 International Financing Review December 19 2020 4 Top news CRT hopes rely on Fannie’s change of heart � Structured Finance Hopes pinned on incoming Biden administration to help revive capital relief trades BY RICHARD LEONG Whether the US mortgage credit risk transfer market will see an issuance boom in 2021 will be determined by whether FANNIE MAE piles back into the market – and that, in turn, will be determined by whether the regulator, the Federal Housing Financing Agency, loosens its capital rules under the new Biden administration, market players say. Rival government-sponsored entity FREDDIE MAC priced its latest CRT deal last week, bringing its annual issuance to US$10.37bn, and Bank of America projects that if Fannie restarts CRT issuance next year, it may print US$13bn–$15bn, in addition to Freddie’s expected total of US$15bn in 2021. ��������������������������� portions of the credit risk contained in the mortgage giants’ massive portfolios to private investors. But Fannie, the ��������������������������� agency, has been on a CRT issuance strike since a deal in March as it is unhappy that it has seen the capital relief from issuing these securities severely curtailed. Last month, the FHFA reduced Fannie’s capital relief from CRT to US$6.2bn from US$15.2bn set in 2018. This means Fannie has to hold more capital on its books against potential losses rather than using the capital to fund its business even as it issues CRT bonds to reduce its credit risks. “Right now [the FHFA has] made CRT basically useless. [A relaxation of the CRT rules has] to make [the new administration’s] priority list,” said Tom Graff, Brown ������������������������������� Fannie’s last deal, the US$966m Connecticut Avenue Securities 2020-SBT1, was priced nine months ago. It has printed only three deals in 2020, bringing its annual total to US$2.1bn. In contrast, Freddie Mac, whose capital relief was similarly slashed – to US$4.7bn from US$12bn – resumed issuance through its Structured Agency Credit Risk programme after credit markets reopened in April in the wake of the pandemic-induced turmoil the month before. The Trump administration’s push to privatise the GSEs has reduced CRT’s role in meeting their capital targets, but there are hopes the Biden administration would see the ������������������������������� US junk issuers make late-year push amid strong demand � Bonds “This is certainly not normal, but in a year where nothing is normal it’s not a surprise” BY DAVID BELL The US high-yield primary bond ��������������������������������� heading into the year-end, as investor demand for higher- yielding opportunities creates strong conditions for companies seeking to raise funding late in the year. Twenty borrowers raised US$11.1bn through Thursday last week with more likely on Friday. That follows US$13.3bn that was raised in the prior week in what is usually a quiet month for primary activity ahead of the holidays. “This is certainly not normal,” said Seth Meyer, a portfolio manager at Janus Henderson. “But in a year where nothing is normal it’s not a surprise.” Borrowers are moving to take advantage of cheap funding, with average yields on US high-yield bonds dropping to record lows of 4.54%, according to ICE BofA data. Investors remain eager to put cash to work, optimistic over the outlook for the US economy in ���������������������������� redemptions providing technical support. “The market has been strong and it’s a great time to issue,” said Greg Zappin, a portfolio manager at Penn Mutual Asset Management. “There’s a lot of demand for credit across the board. The consensus is pretty constructive on spread product going into 2021.” There is also the possibility that reduced vacation travel and the market’s transition to a work- from-home environment have made it easier to get deals done this late in the year than in prior years. “December is being treated like any other month when historically people start packing up through the New Year,” said Meyer. “People aren’t travelling now and deals are getting done.” CYCLICAL Last week’s issuance saw a notable increase from more cyclical credits and energy companies, including ENLINK MIDSTREAM (Ba2/BB+) which priced a US$500m seven-year bullet senior note at 5.625%, and factory automation systems designer ATS AUTOMATION (B2), which upsized its eight-year non-call three senior unsecured to US$350m from US$300m “Sectors that have a more cyclical tilt, like autos and mining also look attractive as we are heading into 2021,” said Brian Kloss, portfolio manager at Brandywine Global. “These cyclical sectors should see marked improvement as the economy rebounds from the lockdowns. Furthermore, they will be supported by monetary �������������������������� ���������������������������� credit markets.” Gaming and leisure sectors were also represented, with cruise line NCL CORP (Caa1/B) ���������������������������� unsecured notes at 5.875% and casino operators AFFINITY GAMING (B3/B–) and WYNN MACAU (B1/BB–) raising US$475m and US$750m, respectively. JUNK BOND YIELDS FALL TO RECORD LOWS Source: ICE BofA US HY Index Yield-to-Worst (%) 4 6 8 10 12 Dec 15 2020 Jun 30 2020 Dec 31 2019 Jun 30 2019 Dec 31 2018 Jun 30 2018 Dec 31 2017 Jun 30 2017 Dec 31 2016 Jun 30 2016 Dec 31 2015 Jun 30 2015 Dec 31 2014 Jun 30 2014 Dec 31 2013 Jun 30 2013 Dec 31 2012 Jun 30 2012 Dec 31 2011 Jun 30 2011 Dec 31 2010 Jun 30 2010 Jan 1 2010 3 IFR Top news 2364 p2-10.indd 4 18/12/2020 18:31:42 International Financing Review December 19 2020 5 For daily news stories visit www.ifre.com @ Global ECM tops US$1trn for first time � Equities Pandemic financings and China drive issuance BY ANTHONY HUGHES, OWEN WILD �������������������������������� upon companies around the world by the Covid-19 pandemic, opportunistic ������������������������� from the societal upheaval plus the remarkable domestic bid for equity in China have driven global ECM issuance ����������������������������� time. Total issuance as of December 18 was over US$1.05trn, ��������������������������������� ���������������������������� region at about US$425bn, followed by the Americas at US$418bn and EMEA at US$206bn. Adjusted for ������������������������� issuance in 2007 was probably higher. ���������������������������� in 2020 were over US$140bn of A-share issuance as China’s listing reforms and US trade tensions brought many companies to their home market and over US$350bn of issuance from the US. �������������������������� ������������������������������� total does not include SPAC IPOs – US$80bn, according to SPACInsider – or at-the-market capital increases, such as the US$10bn Tesla raised from two ATMs. ����������������������� drove record global ECM volumes in 2020,” said David Ludwig, global head of ECM at Goldman Sachs. “Covid-19 forced many companies to enhance their liquidity through raising equity, while others that were less affected used the equity markets to fund organic and strategic investments. “As the markets showed resilience, we saw more typical ���������������������������� return, driving the majority of the volume in the back half of the year.” While market conditions remain excellent – even too good for some as Roblox and ������������������������������ IPOs in the wake of DoorDash and Airbnb popping on debut – there is little expectation that volumes can be sustained next year. As vaccines are injected into arms across the world fewer companies will be returning in desperate need for cash, though the travel industry may well need another top-up and ������������������������������ be plentiful as the strong consume the weak post- pandemic. “As we look forward to 2021, we continue to think the equity market remains constructive for new issues across products, regions and sectors”, said Ludwig. � risk management, analysts and investors said. As a result, market participants are hopeful that Fannie will restart issuing, but the timing remains murky. “I hope they come back,” said Tracy Chen, head of structured ����������������������������� “CRT should shine in 2021.” Fannie could not immediately be reached for comment about its CRT issuance. But even before FHFA handed down its ������������������������������ in November, Fannie said in an ��������������������������������� not “have plans to engage in additional new credit risk transfer transactions in the near future”, as it evaluated the changed FHFA rules. ������������������������������ from Freddie keeping the market open. They are happy to see that happen,” a senior banker said. But the longer they don’t sell deals that transfer credit risk, the more it builds up. “They are storing up a huge amount of risk they don’t want to have,” a buyside analyst said. Investor appetite for CRT has steadily returned as mortgage delinquencies remain relatively low amid the recession. Last month, CRT transactions on average produced a total return of 1.52%, lifting the year- to-date return to 0.35% which put it in positive territory for �������������������������������� from Mark Fontanilla & Co show. But CRT performance is still on track for its weakest annual performance since these securities were introduced in 2013. � Both sectors are seen as ����������������������������� rollout of Covid-19 vaccines. “Right now high-yield investors ����������������������������������� business models, even ones that were cyclically challenged by �������������������������������� banker. “Markets are discounting ������������������������������� Covid pandemic and a return to more or less normal by June next year as the vaccine programme gets fully implemented.” DOWNSIZED ������������������������������������ shelves. Broadcasting company EW SCRIPPS (senior/secured ratings of Ba3/BB– and Caa1/CCC+), for example, downsized the bond ������������������������������������ for Ion Media to US$1.05bn from US$1.2bn in favour of leaning on �������������������������������� market, while waste company GFL ENVIRONMENTAL (Ba3/BB) downsized a 3.50% 2028 secured note to US$750m from US$1bn, unable to budge pricing from the 3.25%– 3.50% price talk. Otherwise last week issuers were generally able to move pricing to the tight end or inside price talk with many also able to upsize their deals. Secondary performance has also been robust with new issues trading above par as of Thursday evening. “Syndicates have been disciplined in making sure all bonds perform relatively well,” said Meyer. While EW Scripps and home healthcare equipment provider ADAPTHEALTH (B1/B–) were raising funds for acquisitions (in the latter’s case a US$500m 8.5 year non-call three to fund the acquisition of AeroCare), the rest of last week’s deals were for ������������������������������� corporate purposes. “For many of the companies you are seeing this is their second or third time to the trough in 2020,” said a second ������������������������� “These are incremental capital raises for the most part.” ���������������������������� to play a bigger role in the market in 2021, with companies growing more willing to take on debt to fund acquisitions because they have greater clarity on their �������������������������������� the performance of acquisition targets. “You’ll see deals get signed up similar to what we saw in the fall,” said the second banker. “Q1 will not be the same craziness as Q4, but it will be solid and you’ll start to see the calendar building for the remainder of the year in terms ����������������������� � ONE TRILLION DOLLARS! EQUITY ISSUANCE SURPASSES US$1trn Source: Refinitiv 0 200 400 600 800 1,000 1,200 US$ billions (lhs) 2020 YTD 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 0 1,500 3,000 4,500 6,000 7,500 9,000 Number of Issues (rhs) 3 IFR Top news 2364 p2-10.indd 5 18/12/2020 18:31:44 International Financing Review December 19 2020 6 Top news India joins year-end ECM rush � Equities Three issuers raise US$1.29bn of primary capital after index breaks records BY S ANURADHA Issuers of all shapes and sizes took advantage of a resurgent stock market and abundant liquidity to raise a total of Rs95bn (US$1.29bn) in the Indian equity markets over the past week. The burst of activity stems from a rally in the benchmark Nifty 50 index, which broke records last week and is up 13% in the year to-date on the expectation that demand for goods and services will improve as vaccines begin to reverse the impact of Covid-19. And going by the current �������������������������������� year is likely to be packed with deals. “Ample liquidity, the possibility of a vaccine and expectations of a V-shaped domestic economic recovery have turned the mood very positive,” a Mumbai-based ECM banker said. State-owned PUNJAB NATIONAL BANK and IDBI BANK raised Rs38bn and Rs14.5bn through their ���������������������������������� placements of primary shares, taking advantage of renewed interest in the beaten-down public banking sector after a 25% rally in the Nifty bank index since the start of November. PNB and IDBI managed to upsize their offers, selling new shares at Rs35.5 and Rs38.60, respectively, in line with their indicative prices. EMBASSY OFFICE PARKS REIT also fetched Rs36.7bn from a QIP, priced at the bottom of the Rs331–Rs335 range. The QIP issues met a good response and have traded well since then. “The outcome would have been even better had the deals not been launched on the same day,” a banker on one of the transactions said. By Thursday’s close, Embassy REIT was at Rs361.73, PNB at Rs37 and IDBI at Rs41.20 – all above their placement prices. “The QIPs represent different stories. The PSU banks are taking advantage of the re-rating of the sector while Embassy REIT remains amongst the country’s premier REIT products,” said Chirag Negandhi, co-CEO at Axis Capital, which worked on all three QIPs. On the IPO front, MRS BECTORS FOOD SPECIALITIES, known for its biscuits and baked goods, raised Rs5.4bn through an IPO priced at the top of the Rs286–Rs288 range after the deal was covered 199 times when books closed on Thursday. The meteoric rise of BURGER KING INDIA, up 192% from its IPO price since listing on Monday, has encouraged more companies to tap the hot market even in the normally quiet December. Mrs Bectors’ IPO was handled by ICICI Securities, IIFL Securities and SBI Capital Markets. London Stock Exchange enjoys busy year ahead of review � Equities Government review of UK listing rules comes as rivals snap at exchange’s heels BY LUCY RAITANO After a slow start, the London Stock Exchange has had one of its most successful years, with around US$68bn raised on the exchange in 2020, double that of ������������������������������ half a decade. The surge in issuance is a welcome boost for the exchange as market participants provide feedback to the UK government on proposed regulatory reforms. Relaxed pre-emption guidelines, the greater participation of retail investors in large deals and notable tech and emerging market listings all stand out as examples of how London adapted in 2020 against a turbulent backdrop. As the Brexit deadline looms, industry players are preparing feedback to a UK Listings Review on ways London could ramp up its appeal as a listing destination, amid an increasing shift towards fast-growth technology, e-commerce and science-based companies going public – all too often in the US. Submissions to a Treasury review, chaired by former European Commissioner Jonathan Hill, are due in early January. DUAL-CLASS SHARES The appetite for dual-class share structures was highlighted in Hill’s call for evidence, having long been seen as a reason for entrepreneur-led companies to list away from London. The Hong Kong exchange allowed dual-class shares in 2018 �������������������������������� Chinese companies seeking US listings, and London moved towards that ground in 2020 with The Hut Group’s £1.88bn IPO that used a “golden share” structure. Although not a full dual-class share structure, London’s largest IPO of the year included a golden share allocated to founder and CEO Matthew Moulding, granting him power to veto any takeover attempt in the next three years. The structure meant the stock is not eligible for FTSE indices. “THG demonstrated you can do that and still have a successful IPO – investors don’t care,” said one senior ECM banker. “Companies with very strong investment cases will always be able to list with structures that more ordinary companies are going to struggle to get away with.” THG’s heavily oversubscribed book and soaring share debut made it clear that investors were undeterred. “Dual-class shares are just one of a number of potential changes that could factor into the decision to list in London,” said LONDON CALLING: EQUITY ISSUANCE BY UK LISTED COMPANIES (US$bn) Source: Refinitiv 0 20 40 60 80 100 Asia-Pacific companies EMEA companies 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 3 IFR Top news 2364 p2-10.indd 6 18/12/2020 18:31:45 International Financing Review December 19 2020 7 For daily news stories visit www.ifre.com @ ANTONY WASTE HANDLING CELL, which had deferred an IPO of up to Rs3bn in March after the outbreak of Covid-19, is opening books this week. THREE-YEAR DROUGHT While India’s private sector banks are perennial investor favourites, state-owned banks have been frozen out of the capital markets by a lack of investor interest. The last time state-owned banks raised a ��������������������������� capital was in 2017, when Bank of Maharashtra, Punjab National Bank, Syndicate Bank and Union Bank of India sold shares totaling Rs84bn. Although there were a couple of small state-owned bank QIPs this year, Canara Bank decisively ended the drought with a fully upsized Rs20bn QIP earlier this month. According to Negandhi, the market is betting that PSU banks will be re-rated once they ���������������������������������� their bad loan problem. �������������������������������� the Indian capital markets,” he said. PNB is raising public capital ������������������������������ when it was caught up in a US$2bn fraud involving companies linked to billionaire jeweller Nirav Modi and his uncle Mehul Choksi, owner of Gitanjali Gems. ����������������������������� capital raising after state-owned Life Insurance Corporation of India bought a majority stake in 2018. The new capital will boost the ������������������������������ Tier 1 capital ratio is likely to improve by 127bp to 12.33% while PNB’s increases by 113bp to 11.45%, according to one analyst. The PNB transaction comprised a base deal of Rs35bn with an option to upsize it to Rs70bn. Local investors accounted for the majority of the book, but around 40% of the 55 investors that participated were overseas buyers. State-owned Life Insurance Corporation was the anchor investor, buying Rs15bn of the placement. The offer price translated into a discount of 13% to the pre-deal close of Rs40.60. Axis Capital, Edelweiss, ICICI Securities, IIFL Securities, PNB Investment Services, SBI Capital Markets and Yes Securities worked on the transaction. IDBI Bank’s QIP comprised a base deal of Rs10bn with a similar upsize option. The offer price is an 8.96% discount to the pre-deal close of Rs42.40. Around 30 accounts participated and the top 10 accounts were allocated 70% of the deal. Axis Capital, Credit Suisse, ICICI Securities, IDBI Capital, IIFL Securities and SBI Capital Markets were the lead managers on IDBI Bank. Embassy REIT, meanwhile, offered investors an opportunity to build exposure to a portfolio �������������������������������� an attractive yield of about 7%, a banker on the deal said. Some 70 accounts participated and the top 10 were allocated 50% of the deal. Overseas investors accounted for 80%. The offer price represents a 6.9% discount to the pre-deal close of Rs355.45. Axis Capital, Bank of America, HSBC, IIFL Securities, JP Morgan, Kotak and Morgan Stanley were the banks on the Embassy REIT QIP. � Claire Keast-Butler, head of law ����������������������������� practice in London. “Others ���������������������� requirement and the ease of raising money in follow-on offerings, all of which could be in a package of potential measures to make listing in London more attractive for high-growth companies.” CLOSER TO HOME London is also seeing increasing competition closer to home. Europe’s largest tech listing was not on the LSE but the Warsaw Stock Exchange where Polish online retailer Allegro raised a record- breaking Z9.18bn (US$2.41bn) in its IPO. “London always used to be the default for any business that doesn’t have the most natural of homes, like those that operate globally or on a pan-European basis,” said one senior ECM banker. “That is no longer the case, and issuers are now thinking about Amsterdam and others as potential listing venues.” ����������������������������� in Amsterdam came when coffee and tea company JDE Peet’s pulled off a €2.25bn Euronext IPO in just eight days in May. Oslo also proved itself a good home for hot tech deals in 2020, after communications platform provider LINK Mobility and video-conferencing software developer Pexip listed there. Bankers complain that the registration requirements in the UK have impeded quick LSE IPOs as a week must elapse ������������������������������ deal and the launch of pre- marketing. Even so, the LSE continued to dominate as the busiest exchange in Europe, and showed emerging markets and technology prowess when Kazakh payments-provider Kaspi raised US$1bn in a GDR listing in October, attracting double-digit coverage on a book of more than 200 lines. “A number of technology companies are looking at listing ������������������������������� the capital raised in 2020 was by tech companies who currently represent 12% of the London market. That number has ����������������������������� years and we see that trend continuing,” said Charlie Walker, head of equity and ���������������������������� at the LSE. The LSE is owned by the London Stock Exchange Group, which is in the process of ������������������������������ PRE-EMPTION RELAXATION One area that will be key to the LSE’s future competitiveness is pre-emption rights – that is, the requirement that those selling equity have to open the deal to all shareholders. The swift action of the Pre- Emption Group to relax that requirement in April in response to the coronavirus pandemic ensured listed UK companies were able to raise up to 20% of their share capital in accelerated bookbuilds rather than the previous limit of 10%, thereby allowing companies to avoid protracted and costly rights issues. “Measures brought in during the pandemic are a good demonstration of how the UK ecosystem can rally together to ����������������������������� Follow-on issuance totalled around £41bn in 2020, according to the LSE, the highest since 2009. The relaxation of the pre-emption guidelines was a useful test drive of a measure many market participants feel could boost London’s competitiveness if implemented permanently. However, guidelines around pre-emption ������������������������������ by the UK Listings Review and the relaxation expired in November. “When companies look at listing in the US and the UK, one of the areas they consider is the ease of raising money in follow- ons,” said David Boles, a partner at Cooley in London. “In the US they can quickly execute a follow-on offering, using the shelf registration statement and adding disclosure about the terms of the offering – it is a quick process.” � “When companies look at listing in the US and the UK, one of the areas they consider is the ease of raising money in follow-ons” 3 IFR Top news 2364 p2-10.indd 7 18/12/2020 18:31:45 International Financing Review December 19 2020 8 Top news Lenders warm to data centre loans � Loans Data centres are in favour with lenders in a post-Covid world thanks to strong outlook for demand BY MARIKO ISHIKAWA The data centre industry emerged as one of the few bright ������������������������� syndicated loan market in 2020 as the coronavirus pandemic raised the appeal of a unique asset class that offers exposure to the fast-growing technology sector combined with security over real assets. An overwhelming response to Asia’s largest syndicated loan for a data centre operator underscores the depth of support from lenders for companies and sectors that are thriving amid an increase in remote working, online learning and e-commerce. The A$1.85bn (US$1.35bn) ����������������������������������� NEXTDC drew 27 lenders in syndication, including four non- banks, and was increased from an initial launch size of A$1.5bn. It is one of the largest underwritten deals Down Under since the outbreak of the pandemic earlier this year. ������������������������������� favour with lenders in a post- Covid world given the incredibly strong outlook for data consumption, consistent growth and emergence of scale operators in the region,” said Peter Graf, head of leveraged ������������������������ Australia. While data centres are not new in the syndicated loan market in ������������������������������� niche industry that has not always been well understood, given the larger capex requirements and narrower pool of tenants compared with other real estate assets. Investment has picked up rapidly in recent years ��������������������������� corporates looking to capture the growth opportunities in the region. NEXTDC has grown from a start-up 10 years ago to an ASX- 100 company with a market capitalisation of around A$5.7bn. It owns data centres in the Australian cities of Brisbane, Canberra, Melbourne, Perth and Sydney. In April, a consortium led by Macquarie Infrastructure and Real Assets acquired an 88% stake in AIRTRUNK, a “hyperscale” data centre specialist, for more than A$3bn. A A$1.63bn- ������������������������������� drew 10 lenders in syndication, ���������������������������� investors. This month the company opened two new data centres in Singapore and Hong Kong and is building a 300MW-plus facility in Tokyo, which is set to be largest in Asia, outside of China. Hyperscale facilities cater to the likes of Amazon, Google and Microsoft, which are all rapidly expanding their cloud services. “Data centre providers are experiencing a higher rate of growth than even they expected. As a consequence, they typically need both more equity capital as well as more debt capacity in ������������������������������� growth,” said Justin Hooley, head of credit opportunities, Australia at Deutsche Bank. “I think the acceleration of the need for greater cloud computing capacity that we have seen through Covid will continue and provide more ������������������������������ digital infrastructure space.” AUSTRALIA IN FRONT Australasia has completed several loans for data centre operators in recent years. In December last year, CANBERRA DATA CENTRES, in which New Zealand infrastructure �������������������������������� �������������������������������� year club loan with 16 lenders ������������������������������� of a data centre in Eastern Creek, near Sydney. “Given the relative nascence of the industry from a credit perspective and the industry’s unique features, APAC lenders were initially assessing credits in the space in varying ways, including through their Veritas SLB gives four-year window to achieve ‘prime’ ESG rating � Bonds Veritas to ESG investors: Lord, make me pure – but not yet BY TESSA WALSH Italian multi-utility Veritas has taken a new step in the rapidly developing sustainability-linked bond market by connecting targets and pricing to its intention to secure a top ESG rating, but the four-year timeframe it has allowed to get there is raising eyebrows. Sustainability-linked loans that tie borrowers’ funding costs to ESG ratings were initially seen in the syndicated loan market, but are less popular now that improving data quality is allowing banks to create more ���������������������������������� and metrics. Veritas does not currently have an ESG rating and is using its new seven-year €100m SLB to signal its intention to get a “prime” rating by November 2024 to investors. Failure to meet the KPI will see pricing step up by 10bp in any of the interest periods from 2024 to 2027. “Veritas will establish a starting point by selecting and engaging ESG rating agencies at an early stage in order to make sure that by year four, they can pass that threshold,” said Giovanni Patricelli, director, corporate and investment banking at UniCredit, which was lead manager and sole bookrunner on the deal and acted as ESG structuring adviser. Veritas did not respond to a request for comment. ESG investors welcomed the intention, but said that the timeframe was too long given the urgency of the climate crisis, and said that a one-year timeframe to secure an ESG rating or using science-based targets would have more teeth. “You need to express more ����������������������������� decarbonise other than reaching a rating over a wide period of time. I respect the intent, but it’s not brave, bold or concrete enough. ESG scores should be the outcome of your decarbonisation process, not the goal,” a leading ESG investor said. A banker said: “Frankly, you can get an ESG rating in three months, so why do you need four years?” Veritas is seeking a prime rating and can choose any one of “Data centre providers are experiencing a higher rate of growth than even they expected” 3 IFR Top news 2364 p2-10.indd 8 18/12/2020 18:31:46

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