Capital Markets Weekly: Belize agrees to innovative debt restructuring involving new marine-focused debt

This week's calendar was overshadowed by concerns of increasing inflation and stress with Chinese property developer Evergrande, but has included several riskier - junk-rated or longer duration - deals. A key positive development was the achievement of a qualified majority supporting Belize's debt restructuring plans. Apicorp's debut Green Bond appears to have achieved a sizeable "Greenium", reinforcing the growing trend that ESG issuance achieves material cost savings. Other highlights include Guatemala selling dollar debt and several sizeable junk bonds.

Emerging markets

Belize has announced the successful restructuring of its defaulted debt. It had started a tender on 13 September for USD552.9 million (including capitalized unpaid interest) outstanding of its 4.938% 2034 issue, offering a cash price of USD550.9 (including USD33 interest) for each USD1000 bond. 84.38% of bondholders accepted the offer, exceeding the 75% threshold to meet its collective action clause.

Belize also has announced that it plans to finance these outlays through a new financing of Blue Bonds using private capital to support marine conservation and sustainable marine activity. The US International Development Finance Corporation is expected to provide political risk insurance for the deal, on which details are to follow, according to Belize's Ministry of Finance.

Guatemala reportedly has sold new dollar-denominated international debt comprising USD500 million of 12-year debt priced at 3.95% and 20-year debt at 4.85%. Proceeds are to fund the country's budgets, according to initial information.

Becle, a Mexican distillery firm that owns the Jose Cuervo tequila brand, which it claims is the world's largest, gained over USD1.6 billion in demand for a USD800 million 10-year issue priced at 2.617%, 110 basis points over comparable US Treasuries and 15 basis points inside guidance.

Credit Bank of Moscow gained over USD900 million of demand for a USD350 million Additional Tier 1 deal. The perpetual offering is first callable after 5.5 years, with a coupon to first call of 7.625% versus initial price talk of 7.875% area.

South Korea's NH Investment & Securities sold USD300 million debut issue of five-year debt at 2.007%, 100 basis points over US Treasuries and 25 basis points inside guidance.

ESG

Arab Petroleum Investment Corporation (Apicorp) has arranged a debut Green Bond issue under its recently-announced framework, making it "one of the first energy focused institutions in the world" to sell Green Bonds.

It placed USD750 million of five-year debt at 1.148%, 40 basis points over mid-swaps and 10 basis points tighter than guidance. Demand reached USD2.8 billion, according to initial reports, with the deal pricing 11.2 basis points tighter than Apicorp's conventional 1.26% 10 February 2026 issue, which was trading at 1.26%.

The Dammam (Saudi Arabia) based multinational development financing institution approved an ESG Policy Framework in April 2021 and detailed its Green Bond Framework on 23 September. Apicorp has established plans to allocate USD1 billion to green energy projects and sustainable energy companies over the next two years. It also has pledged to measure the ESG footprint of all its assets by end 2023.

Mainland China's Chengdu Xingcheng Investment, owned by Chengdu State-owned Assets Supervision and Administration Commission of the State Council, gained USD1.75 billion of demand for a USD300 million green bond, priced at 2.375% versus 2.75% guidance. The entity undertakes urban infrastructure construction and other development projects extending to healthcare. Trade media report that the deal achieved a large "Greenium", the cost benefit from using ESG format, referring to the 2.73% yield on the borrower's outstanding 2.9% 2026 conventional issue.

Instituto Costarricense de Electricidad (ICE), a state-owned electricity utility, placed 10-year dollar denominated debt, using a sustainability-linked format. It placed USD300 million at a 6.75% coupon and 99.107% issue price.

Spanish clean energy firm Acciona Energía, whose shares were floated only three months ago, conducted a debut bond issue in Green Bond format. It offered a EUR500 million 2027 deal, which priced at a 0.375% coupon and issue price of 99.758%, mid-swaps plus 50 basis points, versus guidance of a 90-basis point spread. Demand reached EUR3.75 billion.

Other debt

Despite the volatile market background, most of this week's key developments relate to sub-investment grade debt.

Medline has placed its jumbo junk-bond package. This comprises secured 7.5-year bonds and 8-year unsecured debt, with price guidance initially set at low 4% area and 6% area. It raised USD 7 billion, the largest dollar junk-bond sale since 2015, pricing USD4.5 billion at 3.875% and USD2.5 billion at 5.25% (the latter being an impressive 75 basis points below initial guidance).

Sub-investment grade rated Grifols, a Spanish bioscience firm, raised EUR1.4 billion on 28 September of seven non-call three-year debt at 3.875%, versus guidance of 3.75-4%, alongside USD705 million of dollar debt with the same configuration, priced at 4.75%, the floor of the indicated price range of 4.75-5%. Proceeds will fund its purchase of German biotech firm Biotest.

Consensus Cloud Solutions also arranged a two-tranche junk bond sale. The firm, a provider of secure data delivery services in the healthcare and other regulated sectors and of cloud fax solutions, placed USD305 million of 6% five-year bonds and USD500 million of 6.5% 2028 debt.

Hyatt Hotels Corporation (which has weak investment grade ratings but is under review for downgrading by S&P) sold a three-part offering of three (fixed and floating rate) and four-year debt, with the fixed rate tranches (USD700 million and USD750 million) priced at 1.3% and 1.8%.

On 28 September, Credit Agricole Assurances raised subordinated debt, placing EUR1 billion of ten-year Tier 2 bonds with a 1.5% coupon and 98.86% issue price.

Implications and outlook

This week's conditions have been more cautious, with ongoing uncertainty regarding Evergrande and rising energy prices triggering greater investor focus on credit risks and the potential for more persistent inflation, leading to price falls in both debt and equity markets midweek. While the issue calendar is smaller, it contains sizeable junk-rated transactions, a Russian bank perpetual deal, long-dated debt for Guatemala and other indicators that investors have not moved into a phase of overall risk aversion.

The Apicorp Green Bond issue served as an interesting test of ESG investor perspectives on climate transition, in that Apicorp's book of USD7.89 billion in total assets at end-2020 clearly includes traditional carbon-intensive energy projects - while its Green Bond clearly focuses towards the "rapid and exciting transition towards a cleaner and more sustainable energy mix". While Apicorp may be unattractive to some ESG investors given its prior portfolio, its pledge to measure its carbon footprint from 2023 onwards flags its intention to adjust its asset mix, encouraged other ESG buyers to support its new focus. The issue also was a useful reminder that even where a specific Green Bond issue is targeted to environmental projects, this is no guarantee over the borrower's wider carbon footprint, which Apicorp's portfolio-wide measuring of carbon emissions is designed to address.

Without exact details of Apicorp's bond, it appears to have a large "Greenium". Based on the prevailing 46-basis point differential between three and five-year US Treasury bonds and assuming the new bond matures in early October, this implies a straight-line yield curve difference of 15-16 basis points for the difference in maturity on top of the reported 11.2 basis point yield saving, a total Greenium of over 25 bps.

Recent large-scale sovereign issuance by the UK and Spain generated claims of a Greenium of some 2-3 basis points, with media noting that this represented the largest sovereign differential to date. Chengdu Xingcheng Investment's deal was of modest size, with the apparent cost saving of some 35 basis points versus outstanding debt at the same maturity appearing exceptional - but not necessarily indicative of a wider trend given the limited volumes involved. Apicorp's result should give greater momentum to ESG issuance, reinforcing the perspective that cost benefits are growing and material.

Posted 01 October 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence