SSA SNAPSHOT: Two more sovereigns in euro market

Wednesday looks set to be the second consecutive day of the week to see two sovereigns approaching the euro capital markets. The Kingdom of Denmark was out early with IPTs for its latest 2yr line having conducted investor calls on Monday but decided to sit out yesterday, whilst China could dominate proceedings (and the headlines) with its dual tranche 3yr/7yr transaction that has already attracted significant attention during Asian hours (EUR8.6bn of combined orders hours before the European open).

Alongside those (in euros) we have a trio of issuers that have either already indicated small deal sizes (with no grow) or are unlikely to surprise with a deal of significant volume. In the former camp German regional player Free and Hanseatic City of Hamburg is bringing a EUR500m 5yr whilst French rail transport issuer Ile de France Mobilites is looking at a longer dated line (15yr) and in green format for its own EUR500m transaction. Austrian motorway financier Autobahnen- und Schnellstraben-Finanzierungs-Aktiengesellschaft (ASFINAG) has not conducted a deal larger than EUR1bn in the last 10yrs (although did push to a EUR1.5bn 10yr all the way back in 2003 according to IGM data) and with that it seems unlikely it will do so today as it looks to launch a new 10yr benchmark.

The dollar market is active once again with a trio of issuers offering up four individual lines. The Abu Dhabi Developmental Holding Company PJSC has opted for a 7yr/30yr dual tranche combination which comes on the back of a 5yr/10yr combo that priced in late April 2024. On that occasion 35bp apiece was stripped from IPTs and the individual lines were each sized at USD1.25bn. Back to today and that is the exact volume that Canadian pension issuer PSP Capital Inc is bringing at the 5yr tenor. It hasn't been seen in the USD market since Jun 2022 and has already tightened pricing from SOFR m/s+59 IPTs to a final spread of SOFR m/s+57 after IOIs were indicated in excess of USD2.7bn (which even if not improved upon is the highest order book the issuer has been able to build in the USD market).

The Republic of Turkey rounds off the day's active deals with a Jan 2035 maturity that has kickstarted marketing at 7.125% area IPTs. The issuer has already conducted 10yr and 8yr lines in dollars so far this year with 50bp and 32.5bp of spread compression witnessed on those transactions respectively.

Live Deals

** The Kingdom of Denmark has popped onto screens (a day later than we expected) with a proposed 2yr transaction. We had anticipated seeing this appear on screens Tuesday, directly on the back of investor calls. The 2yr tenor is one that is seen infrequently in the euro SSA sector (as a whole) and even less so in the sovereign sphere. That said, Denmark has been absent from non-domestic capital markets for a number of years, only returning to the EUR market in Nov 2022 for a 2yr deal sized at EUR1.5bn and which is now in need of refinancing.

** Ile de France Mobilites becomes the latest French issuer to test the waters. Bpifrance (EUR1.5bn 5yr social), CCCIF (EUR500m short 4yr) and SdGP (EUR1bn 21yr green) were the last 3 French names to come to the market and they have each done so into robust order books of EUR8.2bn, EUR3.1bn and EUR7.5bn respectively for cover ratios ranging from 5.47x to 7.5x. The practice of pricing over OATs (whilst OATs have underperformed since election effects) has meant that spreads over mid-swaps for French issuers are still looking cheap relative to issuers from other jurisdictions.

** On the back of investor calls/meetings based out of Paris The Ministry of Finance of the People's Republic of China has opened books for a EUR benchmark 2-part fixed rate senior unsecured RegS only note. IPTs on the 3yr tranche have been circulated at m/s+45a and on the 7yr tranche at m/s+65a. Early order updates suggest that the book was already in excess of EUR8.6bn (incl. EUR4.638bn JLM interest) at ca. 11:47 HKT/SGT (that's 4:47am London time). China had targeted the same maturities when it previously reached out to EUR investors with a successful EUR4bn 3-part exercise in November 2021, having also bolted on a 10yr tranche on that occasion. The 7yr and 10yr tranches of that trade are included on the official comps list as follows:

China - Key comps

Those valuations indicate that the sovereign is offering modest premiums of ca. 7bp (3yr) and 5bp (7yr) versus its curve at IPTs, according to our earlier piece from our Asian Credit team.

The timing of the transaction could arguably not be better, following Tuesday’s well-documented policy stimulus, whereby the PBoC announced a cut in its 7-day reverse repo rate (to 1.5% from 1.7%), a reduction to the RRR by 50bps to 9.5% and also a raft of additional measures including a reduction in the minimum down-payment for second homes to 15% from 25%. The stimulus triggered a stampede for Chinese risk which has continued this session, with the Hang Seng and CSI300 stock indices up by 0.68% and 1.48% (having been up by 2.01% and 2.13% as of around midday HKT/SGT), after both bellwethers rallied by over 4% the prior day.

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