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Introduction

July 2021 saw a slowdown in global EM issuance, as seasonal factors started to kick in. The summer months of July and August traditionally see most European investors take annual leave and bond markets tend to quieten down during this period. Asia however is never as affected – although poor credit market sentiment has been slowing the pace of issuance in that region. LatAm witnessed an uptick in new issues, eclipsing CEEMEA into third place – with 27.37% and 22.86% respectively in July.



The July monthly volume dropped to USD56.73bn from last month’s USD106.15bn total, for context July 2020 global EM issuance stood at USD62.26bn. It is anticipated that August will be a lower month of issuance once again, especially as risk markets in Asia have seen investor confidence weaken.

Macro-economic conditions continued to be broadly supportive for global EM primary bond markets in July. The 10-year US Treasury note started the month at a yield of 1.459% and slowly drifted lower during the month, reaching its lowest yield at 1.19% on 19 July. The benchmark T-note closed the month at 1.248%.

Crude oil continued its upward trend during July as the global economy recovered steadily from the pandemic. Increased activity and trading across the world’s economies saw crude oil hit a one-year high of USD75.25 per barrel on 13 July. The price stayed within a narrow range during the last four weeks, between USD73 and 75 per barrel. The strengthening crude oil price is a positive factor for most emerging market economies. Other commodity prices remained steady throughout July.

The Asia region accounted for just under half of July 2021 issuance with 49.78%. LatAm overtook CEEMEA to claim second place with 27.37% and 22.86% respectively.

A cautious tone crept across the Asia region in July. Chinese property developer Evergrande was downgraded by Fitch – from B to CCC+ - after the company experienced some operational difficulties which were thought to possibly hinder the ability to service its debt. These concerns spread across the Asian junk bond market, raising the prospect of a real possibility of defaults in that sector. Time will tell if investor appetite remains as strong for Asian paper as it has been in recent years. However, it is clear that the region has huge refinancing requirements over the next couple of years.



The Latin American region saw an ESG explosion in July with both Mexico and Chile printing jumbo ESG bonds. Mexico issued a EUR1.2bn 15-year and Chile issued a EUR1.75bn dual-tranche and a USD3.75bn three-tranche. CEEMEA and Asian markets also saw ESG highlights including Turkey-based Aydem Renewables choosing to issue their debut as a green bond while Korean NongHyup Bank (A1/A+) issued USD600m dual-tranche in order to finance social projects.

JPM maintain top position in the global EM league table, further increasing its market share from 9.42% last month to 9.64% in July. Citigroup stay in second place although the US bank has conceded a little ground. The following six places down to number eight remain unchanged from last month. Deutsche Bank and Credit Suisse swap places at nine and ten respectively.



Asia

Asia primary markets saw monthly issuance fall to USD28.49bn in July, from USD21.62bn in June and substantially below the USD37.23bn seen in July 2020 as markets had to contend with a range of headwinds through the month. Asian credit spreads traded in a range in the first half of the month, but then saw steep widening at month end as investors repriced risks in relation to the ongoing Covid spread in Asia, continuing problems in the Chinese property sector (in relation to the government’s three red lines policy) and lastly, what has been labelled a “regulatory crackdown” by the Chinese government on private business, where this month regulators took aim at the Chinese education sector.



News flow remained downbeat regarding the spread of Covid in Asia, as despite a much improved vaccine roll out across many nations, Covid case numbers saw sharp increases. In particular, South East Asia saw some very worrying outbreaks, but numbers have also been climbing in Japan as the Olympics started and also in China where the more transmissible Delta variant appears to be evading some of the world’s strictest quarantine measures.

Elsewhere in the Chinese property sector, ongoing negative news flow from property behemoth Evergrande soured sentiment, which spread to the wider high yield benchmarks. Evergrande saw a series of downgrades as various negative news reports and rumours continued to weigh. Evergrande’s board called a special meeting in late July to discuss a possible special dividend, which took the market by surprise, however any such proposal was soon squashed as news of law suits and court actions on the company pushed its debt to new lows.

Fitch downgraded Evergrande to CCC at the end of July citing “diminishing margin of safety in preserving liquidity, which is fragile and heavily reliant on renewing short-term banking facilities and trust loans, continued access to trade payables and robust contracted sales to generate cash flow”. Fitch also cited a court decision to freeze some bank deposits at the request of China Guangfa Bank Co., Ltd. (BB+, stable) and the suspension of sales by a city-housing authority in Hunan province on suspicion of misappropriation of funds as well as reports that some of Hong Kong's largest banks have declined to provide mortgage loans on two of Evergrande's uncompleted projects in Hong Kong (although this was not confirmed).

Even after Fitch’s announcement, negative news flow continued into the last couple of trading days of July as a Chinese court froze assets of the group, sending share prices and spreads to new lows. Evergrande’s 20% stake in Shanghai-listed Langfang Development Co. was frozen by a mainland court for three years. Short term Evergrande debt ended July trading around the 45c in the dollar area.

Lastly, investors in China had to face a widening of what has been termed the Chinese state’s “regulatory crackdown” in July, where Beijing has sought to exert control over some of the country’s fastest growing economic sectors. At the end of 2020 and into 2021 we saw Beijing reign in the tech sector, in particular with regard to its increasing activities in the Chinese banking system and monopolistic activities. Through the past year or so, Beijing has also sought to cool the housing sector, in particular focusing on debt fuelled growth, by imposing strict rules on companies in an effort to bring long term stability and avoid bubbles. However, July saw the government turn its focus to the Chinese education sector, an area where Beijing has been trying to create a more level playing field for poorer families to access the same resources as more wealthy ones. Beijing has also focused on the sharp growth of the non-state education sector and in particular how they raise funds, threatening to ban VIEs for Chinese companies. VIEs (Variable Interest Entities) have been used by Chinese companies to raise funds in the US, as they allow investors to benefit financially from a company while limiting investor control (enabling Chinese companies to comply with strict rules regarding foreign control).

Beijing also imposed new rules regarding operations and profitability of education companies, but the apparent clamp down on VIEs led investors to speculate on which sector Chinese regulators might take aim at next and duly prompted a rout in Chinese stocks prices (adding pressure to credit spreads. The China Securities Regulatory Commission held a conference call with key banks and investors at the end of July in an effort to reassure the market, however pundits suggest that the new regulations are driven by much higher powers in the CCP, leaving the CSRC with little control over how new policies are enacted.

Lastly, on Friday (30 July) Reuters reported that the SEC will not allow Chinese companies to raise money in the United States in future unless they fully explain their legal structures and disclose the risk of Beijing interfering in their businesses. The move follows steep losses seen for Chinese companies through the month of July, in response to the Chinese government’s new policies.

Looking at issuance breakdown, Chinese issuers brought deals with a total size of USD14.51bn in July, representing over 50% of Asia’s monthly volume but slightly lagging behind the USD17.58bn seen in June.

The Chinese corporate sector remained active in July with monthly issuance volumes reaching USD8.51bn. China Modern Dairy issued a debut USD500m 5-year (BBB, S&P) and Xiaomi Corporation printed a USD1.2bn dual-tranche (Baa2/BBB-/BBB). Looking at the property developers, Beijing Capital Development returned with a USD517m 5-year (BBB, Fitch), followed by Sunac China’s USD500m dual-tranche (B1/BB-/BB) and Ping An Real Estate’s USD600m dual-tranche Green (Baa3). Moreover, state-owned issuers also brought a number of USD bonds during July, including Shandong Iron and Steel’s USD500m 3-year (unrated), Aluminium Corporation of China’s USD1bn dual-tranche (A-, Fitch), Zhejiang Provincial Energy’s USD500m 5-year (A2/A+) and CSSC Shipping’s USD500m 5-year Green (A-/A, S&P/Fitch).

The Chinese financial sector saw slower activity in July with monthly volumes of just USD4.98bn, among which China Construction Bank Leasing sold a USD600m 5-year (A2/A, Moody’s/Fitch), Citic Bank USD600m brought a PNC5 AT1 (Ba2) and Shanghai Pudong Development Bank issued a USD700m/HKD2bn dual-tranche (Baa2). Elsewhere, ICBC sold a USD600m 3-year (A2), and ICBC Financial Leasing followed with a USD1.25bn multi-tranche (A2/A).

Hong Kong borrowers brought deals with a total size of USD2.3bn during July, including a Road King Infrastructure USD500m 5NC4 Green (Ba3/BB-) and a Hong Kong Land USD500m 10-year Green (A2/A).

Korea’s monthly issuance dropped to USD2.59bn in July from USD8.08bn seen in June. Korea Gas sold a USD800m dual-tranche (Aa2/AA/AA-), followed by Korea Investment a& Securities’ USD600m dual-tranche (Baa2/BBB) and Nonghyup Bank’s USD600m dual-tranche Social Bond (A1/A+).

Looking at Southeast Asia, Temasek Holdings brought a notable USD2.5bn multi-tranche (Aaa/AAA) bond boosting Singapore’s monthly issuance to USD3.55bn, compared with USD1.99bn seen in June. Meanwhile, Indonesia raised USD1.65bn and EUR500m through its multi-tranche sovereign bond issuance (Baa2/BBB/BBB).

Pakistan also issued a USD1bn multi-tranche tap of its existing bonds (B3/B, Moody’s/Fitch) in July. And India issuer Adani Ports brought a USD750m dual-tranche (Baa3/BBB-/BBB-).

In terms of the pipeline, several issuers started the book building process in August while four aim to price a deal within the next two days. Another seven issuers were seen starting investor calls during July and Korea is expected to issue a Green bond in September.

Looking at the league table, the top 10 banks remained in the same places as they were seen at the end of June, with HSBC, Citigroup and Standard Charter in first, second and third place respectively.



CEEMEA

CEEMEA primary issuance fell off a cliff in July, after the record-high levels in June last month. The monthly total of USD12.97bn in July was a little over one quarter of last month’s issuance. The downturn in issuance was not due to negative market conditions. Far from it, investor demand remained strong, as new transactions saw multiple-times cover. The pipeline for CEEMEA going into August is thin, with only Rwanda having held investor calls on 26 July for a possible USD benchmark 10-year, subject to market conditions.



Romania (Baa3/BBB-/BBB-) placed the largest transaction of the month in CEEMEA. The sovereign priced a EUR2bn 9-year and EUR1.5bn long 20-year, at spreads of MS+180bp and MS+260bp respectively. The transaction attracted a final orderbook of EUR5.3bn for the shorter tenor and EUR3.5bn (pre-reconciliation) for the longer tranche.

Several issuers made their international bond debuts last month in CEEMEA. The first of the quadruplet was Bank Gospodarstwa Krajowego (BGK) rated A- by Fitch, which sold a EUR500m 10-year at MS+50bp. The state development bank of the Republic of Poland raised funds for the nation’s Covid-19 Response Fund. Final book was reported to be at EUR590m (excluding joint-lead managers).

Dukhan Bank of Qatar issued a USD500m PNC5.5 of Basel III compliant Additional Tier 1 issue at a yield of 3.95%. The book was last heard to stand at USD2.25bn (excluding JLMs).

Bulgarian Energy Holding EAD (Ba2//BB) priced a EUR600m 7-year at a yield of 2.45%, with a book last heard at EUR1.55bn. Turkey’s Aydem Yenilenebilir Enerji – Aydem Renewables - (rated /B/B+) opted for its inaugural international bond offering to be used to finance eligible green projects. The company placed a USD750m 5.5NC3 issue to yield 7.95%. Books closed around USD1.6bn.

The CEE region accounted for the lion’s share of CEEMEA issuance last month, accounting for 62.93% of volume. This was boosted by Romania’s large transaction in early July.

Africa increased its percentage total from previous months, as the continent saw a few issues. The Republic of Benin (B1/B+) tapped the international bond markets with a EUR500m 12.5-year WAL at a yield of 5.25%, with books last heard over EUR1.2bn.

The top four places remain unchanged from last month. Goldman Sachs and BNP Paribas have swapped places at number five and six respectively whilst Deutsche climb one place from last month.



LatAm

The LatAm region saw a slight rush in July with USD15.3bn issued, marking the third busiest month of the year, just before the August lull comes into effect. The ESG market continues to steal the spotlight as a record USD9.91bn of new ESG bonds was issued in July alone, as sovereigns take advantage of investor appetite for environmental objectives.



ESG bonds continue to be the talk of the town as LatAm lead the EM regions for sovereign environmental bonds during the month. The region has issued over USD49bn in ESG bonds since the beginning of 2020. Ratings agency Fitch has indicated that even more green, social, sustainability and sustainability-linked (GSSS) international debt from the region should be expected in the coming months, especially as corporate issues begin to take interest.



Mexico (Baa1/BBB/BBB-) brought a new sustainable development goals bond in the form of a EUR1.25bn August 2036 issue. Mexico intends to expend an amount of budgetary resources equal to the proceeds from the sale of the bonds to fund budgetary programs that qualify as eligible sustainable development goals expenditures. Mexico has been churning much needed good news recently with the Ministry of Finance announcing that economic activity has returned by 99.6% to pre-pandemic levels including dramatically improving employment figures.

Similarly, Chile has also gained a little respite with improving copper prices and better vaccination rollouts across the country. The country took quick advantage of improving conditions to issue a bonanza in July with a EUR dual-tranche issue and a three-tranche USD issue all branded as social bonds under Chile’s sustainable bond framework. The tranches included EUR1bn 2027s, EUR750m 2036s, USD2.25bn 2033s, also tapping the existing 2061s by USD500m, and the 2041s by USD1bn.

On the corporates list, Chile-based Interchile SA (Baa1//BBB+) took advantage of the buoyant market to print a jumbo USD1.2bn 35-year. This became the first Baa1 rating the electricity company received from ratings agency Moody’s, citing the importance of the electricity lines held by the company and positive economic outlook.

MC Brazil Downstream also joined the LatAm jumbo club in July with a USD1.8bn 10-year. The company is an acquisition vehicle which is controlled and advised by Mubadala Capital, the UAE sovereign investment fund. Mubadala is acquiring the Refinaria Landulpho Alves refinery and associated logistics assets from state-owned oil company Petrobras.

Brazil’s third largest telecommunication company, Oi S.A. (formerly known as Telemar), also issued a USD500m 10-year (5-year callable) bond. Oi reportedly auctioned its mobile network operation in December to a consortium of TIM S.A., Telefonica Brasil and America Movil. However, the sale is yet to be approved by Brazil’s competition regulators.

Looking ahead, LatAm markets are expected to wind down for the August lull. Panama’s main international airport Aeropuerto Internacional de Tocumen (Baa2/BBB) did conduct investor calls during the last week of July for a USD benchmark 144A/RegS long-dated offering.

August has traditionally been considered the quietest month of the year, however, issuance has been picking up during the summer month.

JP Morgan continues to remain at the top of the LatAm league table with USD14.98bn (14.60% market share). Citi and Bank of America follow in second and third places respectively.



All data, unless otherwise stated, sourced from the Bond Radar Data Wizard