Emerging Markets: Poland prices; Ukraine cancels; around $10 billion prices in mixed week

Chicago, July 2 – Emerging markets issuance was active and mixed in terms of issuance size, issuer type and geographical area in the June 29 week, which also marked the end of the second quarter.

The week was marked again by a mix of sovereign deals and semi-sovereign deals, while corporate issuers have steadily returned to the global market with major currency deals after an initial hiatus in response to the beginning of the global pandemic at the beginning of March.

Since April 1, volume has consistently floated between roughly $10 billion and $20 billion of new issuance each week.

Sovereign deals and news

The Republic of Poland brought the largest deal to the market in the week, with €2 billion of 0% three-year notes which priced on June 30.

The notes priced at 100.331 to yield negative 0.11%.

The sovereign was also in negative yield territory in February, when it priced a five-year note for €1.5 billion with a 0% coupon. That note priced at 19 basis points over mid-swaps for a yield of negative 0.102%.

A third negative yield note was sold in 2020 as a private placement for €200 million on January 16 with Commerzbank listed as arranger.

Ukraine surprised the market with a cancellation of an announced switch tender offer and an expected new issue of $1.75 billion which were coming via J.P. Morgan Securities plc and Goldman Sachs International.

The cancellation was a response to the unexpected resignation notice submitted by the governor of the National Bank of Ukraine, Yakov Smolii.

Smolii posted to Twitter, regarding his resignation, “I’ve submitted my resignation appeal to the president. This decision has been taken as an answer to systematic political pressure that denied fulfillment of my duties as the governor. Let it be a warning for attempts to undermine institutional independence of the central bank.”

On June 9 the executive board of the International Monetary Fund approved an 18-month standby agreement with Ukraine for the equivalent of approximately $5 billion.

The program was designed to help Ukraine cope with the “Covid-19 pandemic challenges by providing balance of payments and budget support, while safeguarding achievements to date and advancing a small set of key structural reforms, to ensure that Ukraine is well-poised to return to growth when the crisis ends,” according to an IMF notice about the bailout.

It is unknown yet whether Smolii’s resignation will impact the bailout.

Away from the new issue market, Belize announced that it did not achieve a 2% GDP surplus in the fiscal year 2019/2020.

This has impact on the nation’s 2034 U.S. dollar bonds.

The country will be seeking the consent of bondholders to capitalize interest payments through February 2021.

All of Belize’s financial resources will be used in the near term to mitigate the effects of the pandemic, and therefore the government will not have the money to make the August 2020 coupon payment on the 2034 bonds.

The alternatives are a consensual deferral or allowing a default until the crisis abates.

The prime minister of Belize, Dean Barrow, in answering questions about whether the government would seek an agreement with the International Monetary Fund “stated categorically that his administration will not pursue an IMF program.”

Belize was downgraded to CC from CCC by S&P Global Ratings as a response to the announcement.

Persero sells $1.5 billion

PT Perusahaan Listrik Negara (Persero), the Indonesian government-owned electric company, brought $1.5 billion to the primary market, in a semi-sovereign deal during the week.

The two-part offering included 500 million of 3% notes (Baa2//BBB) due 2030 and $1 billion of 4% notes due 2050.

The deal listed Citigroup Global Markets Inc., HSBC Ltd., Mandiri Securities Pte. Ltd. and Standard Chartered Bank as the lead managers and bookrunners.

Green and social issues

Two issues came to market with a social or green bent, both of benchmark size.

Korea Housing Finance Corp. priced €500 million of 0.01% social covered bonds due July 7, 2025, and Brazil’s Rumo SA priced $500 million of green notes.

Korea Housing Finance issued its zero-interest rate note “to support ordinary people struggling with economic difficulties” due to Covid-19.

The issue was the first of its kind, as a covered social bond, from a non-European country in response to coronavirus.

The investor breakdown was 42 investors with 29% of those investors as central banks and international organizations, 29% large asset managers, 40% pension funds and 31% banks. The share of ESG investors is 88%.

Brazil’s Rumo priced $500 million of green notes, at the lower end of the expected issue amount, which was expected in the range of $500 million to $750 million.

Proceeds will be used to reduce gas emissions, contributing to a low-carbon economy.

More specifically, according to a pre-issuance verification letter, Rumo plans on using green financing for its physical infrastructure so that its rail network is compliant with the emission threshold for dedicated freight railway lines, those that are not used to transport fossil fuels.

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