SSA SNAPSHOT: Tap deals dominate as deal flow slows

We were expecting to see a slowdown in SSA volumes this week, with the Street telling us on Friday that it expects at most EUR10bn to emerge and with an average response of EUR7bn (coming on the back of EUR22.75bn last week). The prediction came with the caveat that a sizable sovereign deal would probably need to surface to get us to the higher figure. In keeping with the modest expectations we have seen a few deals trickle onto screens this morning with a spread across the major currencies and with 3 out of the 4 deals coming as taps of existing lines - two of the four are in euros and both of those are taps.

Canadian pension issuer PSP Capital Inc appears to have snatched first mover advantage with the announcement of a EUR250m increase to its 3.25% July 2034 line whilst following closely behind was Rentenbank which is also looking at increasing the volume of a 2034 maturity. Its expected deal is a little larger, at EUR400m (min), and will be on a slightly longer maturity (3% Nov 2034). The German agricultural bank has already set final spread in line with IPTs of m/s+22 after an update which indicated an order book of just EUR280m. The issuer is known for offering very little in terms of concessions when using a tap approach, with IGM data going back to 2018 (in this instance) suggesting an average NIC of -0.375bp (negative) compared to 0.333bp for new transactions (which is still low and paints a pretty clear picture of how the issuer usually approaches deals in terms of pricing). Today's m/s+22 IPT appears to be offering a relatively lofty 1bp concession but still appears unlikely to cause a stir on the demand front. The issuers' last two coverage ratios (where figures are available, as books are often not disclosed for taps) came at 1x and 1.02x and today looks like it may be following a similar path.

Going back briefly to PSP Capital Inc and the line to be increased is the only benchmark sized bond from the issuer to date, having been first placed just a few months ago on 25th June. A healthy enough EUR1.2bn of orders were recorded for the EUR750m transaction with the deal landing at m/s+53, which is pretty much where the bond was seen trading on screens this morning (in the i+53-54 area) thereby implying a c.4bp NIC. With a mid-morning update showing EUR285m in the order ledger the final spread was set in line with IPTs.

Looking to complete the trio of taps on the day is BNG Bank (BNG) with a tap of an Aug 2026 SOFR-linked FRN. The deal is expected to be USD450m in size to take the underlying to a round USD1bn having already indicated that the deal will be conducted at SOFR+30 (the number). The tap approach isn't commonly used by BNG in the dollar market with the last increase of an existing USD line taking place way back in Feb and March 2019 when an FRN with a Mar 2022 maturity was tapped twice in just over a month.

Having a relatively more successful time in the primary market this morning is the European Investment Bank (EIB) which is bringing a new GBP750m 5yr. Having touted spreads at SONIA m/s+33 at the outset the final spread has been set 1bp lower after orders surpassed GBP1bn. That appears to be a robust showing by sterling market standards although EUR or USD investors in the name may be accustomed to seeing order books of much larger magnitude. Indeed, its last euro outing for a new EUR5bn short 10yr, conducted just under 2 weeks ago, saw orders peak at EUR34.5bn (and was only its fourth highest order tally of the year in the single currency) whilst its last USD deal (a USD5bn 5yr) saw demand peak at USD25.4bn.

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Priced last week

• For the full report in the original PDF format click here: SSA Weekly - 13th September 2024
• Euro issuance burst through the EUR500bn mark (our figures include EM sovereigns) with a total of EUR22.75bn priced over the course of last week with heavyweights European Union (EUR10bn dual tranche) and the Republic of Italy (EUR8bn) doing a significant amount of the heavy lifting. The breaking through of the EUR500bn threshold also means that YTD issuance is now higher than each of the last two full years, with over 3.5 months still to go.
• USD activity was condensed into a single day and saw 5 individual lines priced for a total of USD7.75bn. The African Development Bank (AfDB) arguably brought the standout deal with a 5yr social line that extended its dollar benchmark curve although Kommuninvest should be applauded for its efforts after a weak deal in euros in the prior week.

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