SSA SNAPSHOT: Off to a slow start after record August

Late August was busy by historic standards and with a number of large European issuers having already hit the market (EFSF, EIB, KfW, BNG Bank, Finland, Austria) we are expecting a slow down of sorts in SSA space (in contrast to the other sectors it would appear). That said, the European Stability Mechanism (ESM) was already in the pipeline ahead of the weekend (whilst the EU will be following next week) and as we noted in our most recent SSA WEEKLY there were rumours swirling that there could be one (or even two) sovereign names looking to bring deals to the syndicated market this week.

Also in the pipeline since before the weekend (with a Friday morning initial mandate) was the Development Bank of Japan. It held conference calls on Friday ahead of a possible 4yr sustainability line, which will mark its first appearance in euros in 2024. However, there is no sign of the deal on Monday morning (as yet) which is perhaps not all that surprising given the methodical and 'non-urgent' manner in which the issuer very successfully (especially in recent months) navigates the capital markets. We'd expect the deal to push ahead (market permitting) with IPTs later today but with pricing expected on Wednesday - much as it did for its last outing in euros in September 2023. On that occasion the issuer provided IPTs on 5th Sept and priced on 6th, but after an investor update period that stretched either side of the preceding weekend (calls on 1st and 4th of the month). Its patience and pragmatism paid off with a EUR500m deal met with EUR6.4bn of demand (12.8x covered) after 6bp were slashed from IPTs, leaving a 3bp new issue concession.

In stark contrast, the ESM made an early move with IPTs hitting screens a few minutes before 8am (London time). It opted for a EUR2bn deal with a 10yr tenor, which many market participants would have already got close to guessing given its issuance history. The issuer has a EUR6bn annual funding target this year and this will leave EUR2bn still to be done as we head into the usually quieter months of the year. Book updates this morning have been robust, without setting the world alight - coming at EUR6.3bn at the update of final terms. That was deemed sufficient to see the spread tweaked by 2bp to land at m/s+26. A cursory look at the ESM curve would imply a fair value in the m/s+low 20s area, with the current gap in the debt profile between Aug 2033 and Nov 2036 muddying the waters a little in terms of a more accurate estimate. Still, there appears to be a small NIC left in play (c3bp) which kind of goes against the dynamics seen from the issuer in recent years, where since 2019 the average NIC from ESM has been just 0.88bp. The market has arguably been inundated with high-profile names in decent issuance sizes and perhaps this is the very first glimpse of some issuance indigestion? Especially since the deals seen in the last few weeks have come so much earlier than would usually be the case.

Live Deals

New Mandates / still in pipeline

** KommuneKredit, rated Aaa (Moody's, stable) / AAA (S&P, stable), has mandated Barclays, BNP Paribas, Danske Bank and TD Securities to lead manage its forthcoming EUR Benchmark long 7yr transaction - RegS Registered note. The transaction will have a 4th March 2032 maturity.

** Kommuninvest i Sverige AB, the Swedish Local Government Debt Office, rated AAA/Aaa (S&P/Moody's, both stable) has mandated BofA Securities, Citi, Credit Agricole CIB and Nordea for a 4yr EUR benchmark transaction, due 4 October 2028. The transaction will be launched in the near future, subject to market conditions.

** City of Munich (Landeshauptstadt Muenchen) has mandated BayernLB, Deutsche Bank and ING to arrange a series of investor calls and meetings, commencing on 03 September, to present its newly established Sustainable Finance Framework which has received a Second Party Opinion (‘SPO’) by imug rating GmbH. Deutsche Bank and ING are Joint Sustainability Structuring Advisors. An inaugural, unrated, fixed rate coupon (0% risk weighted, LCR Level 1) min. €250mn Green Bond may follow, subject to market conditions. A Factsheet on City of Munich, the Framework, its Second Party Opinion and an Investor Presentation summarising the issuer’s sustainability strategy and framework are available here.

** Development Bank of Japan Inc (DBJ), rated A1 (stable) by Moody’s and A (stable) by S&P, has mandated Daiwa Capital Markets Europe, BNP Paribas, Citi and Morgan Stanley as Joint Lead Managers for a potential EUR benchmark senior unsecured fixed rate 4yr DBJ Sustainability Bond (the Issuer's 18th Sustainability Bond), subject to market conditions.

Priced last week

• For the full report in the original PDF format click here: SSA Weekly 30th August 2024
• EUR issuance (of EUR21.65bn) was spearheaded by frequent, high-volume issuers in the shape of EFSF and EIB, with both issuing EUR5bn apiece. The former from a dual-tranche long 3yr / May 2031 tap whilst EIB brought a new 10yr CAB (green). Austria dropped the idea of a long-dated tap in favour of a new 5yr benchmark (EUR4.5bn), Bpifrance attracted attention (again) this time for a social line and SEK extended its EUR curve with a green 7yr. CEE sovereign Bulgaria issued 8yr / 20yr, attracting over EUR10bn of orders
• August 2024 SSA issuance in euros topped out at EUR35.65bn, the highest ever for the month
• Amazingly, euro issuance for the year now stands at EUR481.07bn and is within less than EUR20bn of the full year issuance tallies from both 2022 (EUR499.6bn) and 2023 (EUR497.57bn). [Note: For clarity IGM’s SSA figures include EM sovereigns]
• In dollars, the make-up of issuers was very different to the prior week, but the outcome was similar – low NICs and robust cover ratios with the entire USD9.25bn of supply coming on Wednesday

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