Table Of ContentNOVEMBER 7 2020 ISSUE 2358 www.ifre.com
EQUITIES
Ant agony for
banks but outlook
for China-to-US
IPOs brightens
04
BONDS
Forgiving investors
get behind Waste
Management’s
US$2.5bn return
06
LOANS
Another ION
bites the dust:
��������������
fails
08
STRUCTURED EQUITY
Good in a crisis:
stellar EQL year
continues with
Cellnex return
10
Ant eaten: bankers left ‘shocked and
confused’ as China stamps on US$34.4bn IPO
Pipeline fills up as markets across the
world shrug off US election disputes
Red flags: bank watchdogs step up
scrutiny of working-from-home risks
1 IFR Cover 2358.indd 1
06/11/2020 19:10:59
The stripes in the graph show the average annual
temperature increase in Germany from 1881 to 2018.
Sustainable investments help to achieve the UN‘s SDGs.
#showyourstripes @nrwbank
Reliable.BANK
www.nrwbank.com/greenbond
Our mission: providing coronavirus aid to
North Rhine-Westphalia
��������������������������������������������
03.07.20 09:11
1
Upfront
� OPINION INTERNATIONAL FINANCING REVIEW
International Financing Review November 7 2020
Down to size
H
ow many countries would kill a record-breaking IPO at
the last minute just to make a point?
Certainly, the demise of Ant Group’s US$34bn-plus Hong
Kong and Shanghai listing last week sends a clear message that
no deal is beyond the reach of China’s all-powerful regulators.
Chinese commentators have praised the regulators for
rushing out reforms before the stock was listed, as changes
to consumer lending rules would have made for volatile
trading in the shares.
But are the Chinese authorities really so incompetent that
they didn’t realise the need to change the rules for consumer
���������������������������������������������������
�������������������������������������������������������
tighter regulation, but the company did not appear
overnight. If China’s regulators simply wanted to control
systemic risks resulting from Ant’s growing dominance, they
had ample opportunity to do so long before the listing was
launched.
Instead, four of China’s regulatory bodies summoned Jack
Ma and Ant’s other top executives to a meeting on Monday
and unveiled new rules for online micro-lending, one of the
most lucrative businesses on Ant’s platform. That prompted
the Shanghai Stock Exchange to halt the A-share listing on
Tuesday, less than 48 hours before the shares were due to
begin trading.
The timing of that intervention can only have been
determined to make a political point – to kill the chicken to
scare the monkey, as the Chinese saying goes.
Ma’s comments at a Shanghai conference in late October
appear to have triggered this regulatory response. In an
unusually blunt speech calling for the modernisation of China’s
����������������������������������������������������������������
unsophisticated pawnshops – a description that would not have
gone down well with the authorities. It seems clear that China’s
most senior leaders think Ma has simply got too big for his
boots and needed bringing down to size.
This dressing down, however, comes at a steep cost. In
halting Ant’s listing, China has missed the opportunity to
showcase the depth and competitiveness of its capital
markets through a world-beating IPO. It makes the regulators
look capricious and the country’s market-driven reforms
disingenuous, and could make other promising Chinese
issuers rethink the appeal of the Shanghai Star market.
Chinese companies looking for certainty of funding may
now be more inclined to turn to the US, especially with the
prospects of a new US administration that is less erratic and
less hostile to Chinese companies.
������������������������������������������������������������
������������������������������������������������������������
up their control over the capital markets or the IPO process.
��������������������������������������������������������
months, anyone expecting China’s capital markets to follow
international standards had set themselves up for
disappointment. That is a valuable lesson – even if it had to
be learned the hard way.
Up to no good
T
�����������������������������������������������
accelerating change in how bankers and traders are
supervised, just as they will have long-term implications for
where and how people work.
Supervisors were already using more data analysis to spot
����������������������������������������������������������
evidence of wrongdoing in chatrooms and text messages.
Now, with staff working from their spare bedrooms or
studies – where there are no cameras or colleagues to watch
or put an early check on misbehaviour – more areas have
gone dark for supervisors. So they need to speed up their
shift to data and model-based supervision.
�������������������������������������������������������
will next week merge its data and technology arm with its
market oversight operations into a new Division of Data. The
������������������������������������������������
regulators, and it reckons enforcement action could now be
brought just by using trading analysis.
��������������������������������������������������������
will require improvement in data analysis tools, so they not
����������������������������������������������������������
������������������������������������������������������������������
That, the big data evangelists say, is all now possible.
At least that is the theory. Where’s there’s money to be
made there will always be people trying to take advantage.
No doubt such people are operating right now inside banks
�������������������������������������������������������
conditions will allow them to hide any misbehaviour.
The real test of the new model of compliance is whether they
do. And we won’t know that – if we ever do – for some time yet.
Having a moment
S
��������������������������������������������������������
��������������������������������������������������������
course, volatility is a positive for the asset class so a pandemic
that roils markets is a helpful, if unwelcome, event.
���������������������������������������������������������
driven by both the desperate and the opportunistic. Deal
structures have been vanilla – a little boring even, considering
the innovation of years past in the region. Pricing has been
sensible with high premiums and low coupons for issuers and
trading performance has been positive.
���������������������������������������������������������
growth names, offering something like the excitement seen
in the US, albeit on a much smaller scale.
Equity-linked is often a forgotten part of ECM, understood by
surprisingly few bankers, but it is proving its worth this year.
2 IFR Upfront 2358 p1.indd 1
06/11/2020 20:42:46
International Financing Review November 7 2020
2
Top news
China-to-US IPO outlook 04 Markets shrug off election woes 06 Investors support Waste 06
Ant delay hits listing reforms
� Equities Suspension shows China is still uncertain about giving up full control over IPO approvals
BY FIONA LAU, KAREN TIAN
China’s shock decision to halt
ANT GROUP’s IPO has revealed the
limits of the Shanghai Star
market’s registration-based
listing regime at a time when
regulators are looking to roll out
the framework across the
country.
The planned Rmb114.9bn
(US$17.2bn) A-share IPO, the
largest in China, would have
been the biggest endorsement to
date for the 15-month-old
Nasdaq-style Star market, which
has quickly become an attractive
listing venue for Chinese
technology companies in part
because of its streamlined listing
process.
The Shanghai Stock
Exchange’s decision to suspend
the deal, however, shows China
may not be ready to give up
control over IPO approvals in
full.
“From Ant’s suspension, we
can see Chinese regulators are
not yet accustomed to the
complete tolerance and
openness of market-based IPOs,”
said Dong Dengxin, director of
the Institute of Financial
Securities at Wuhan University
of Science and Technology.
Dong warned that the
simultaneous halt of the
Shanghai and Hong Kong
listings only 48 hours before the
shares were due to begin trading
would have a negative impact on
the reform of the registration
system as well as the exchanges
themselves.
“The Star market has been
hoping to attract high-quality
tech companies to list in
Shanghai. It remains to be seen
whether the Ant incident will
undermine the attractiveness of
the market,” he said.
The reforms introduced with
the launch of the Star board in
July 2019 played a large part in
Ant’s decision to list in both
Hong Kong and Shanghai.
“The innovative measures
implemented by the two
exchanges have opened the
doors for leading-edge
technology companies to have
greater access to the capital
markets,” Ant executive
China stamps down on Ant IPO
� Equities “Shocked and confused” bankers do not expect quick relaunch of deal
BY FIONA LAU
China’s last-minute cancellation
of the world’s biggest IPO has
handed bankers and investors a
painful reminder that the
country’s capital markets
remain exposed to enormous
political and regulatory risks.
ANT GROUP was forced to pull
the plug on its US$34.4bn Hong
Kong and Shanghai listing on
Tuesday, less than 48 hours
before its shares were due to
begin trading, after China
unveiled a surprise clampdown
on online lending.
Regulators staged a dramatic
intervention on Monday,
summoning founder Jack Ma and
Ant’s top executives for talks and
unveiling proposals that would
limit Ant’s ability to connect
borrowers and lenders on its fast-
growing platform. The move
prompted the Shanghai Stock
Exchange to suspend the A-share
leg of the deal on Tuesday night,
with Ant calling off the Hong
�������������������������
The abrupt halt of Ant’s listing
stunned bankers on the deal,
who reckon Chinese regulators
had many chances during the
IPO process to stop the listing
without waiting until two days
before the debut.
“We are shocked and
confused,” said one of the
bankers working on the deal.
“The CSRC has approved Ant’s
Star IPO and Hong Kong listing.
They could have rejected Ant’s
listing if they felt the online
micro-lending business needs
tighter scrutiny.”
The timing of the regulatory
intervention has raised
questions over China’s
commitment to market-driven
reforms in its domestic capital
markets, where the launch of
the tech-focused Star board had
introduced a disclosure-based
IPO regime that is closer to the
US model.
The deal’s cancellation also
came as a bitter blow to 1.5
million retail investors in Hong
Kong, many of whom had
borrowed heavily to invest in the
IPO, and to the underwriters
who had been expected to share
a payday approaching US$400m.
Chinese e-commerce giant
Alibaba Group Holding, which
holds a 33% stake in Ant, fell
8.1% in New York on Tuesday
and underperformed its peers in
the second half of the week as
investors took the move as an
attack on Ma, founder of both
Alibaba and Ant.
Many observers interpreted
the halt as being a result of Ma’s
recent criticism of China’s
��������������������������������
At a conference attended by
regulators on October 24, two
days before the Hong Kong leg of
the IPO started bookbuilding, Ma
said that local and global
������������������������
innovation and should introduce
reforms to allow the use of big
data in lending decisions instead
of collateral. He also said
Chinese lenders still operated on
a “pawnshop model” and
compared the Basel Accords to a
club for the elderly.
Ma’s comments drew heavy
criticism in Chinese state media.
On Monday, Guo Wuping, head
of consumer protection at the
China Banking and Insurance
Regulatory Commission, named
several consumer loan
companies, including Ant units
Huabei and Jiebei in a
commentary in the 21st Century
Business Herald arguing that
FinTech lenders should face
similar levels of scrutiny as
traditional banks.
Guo also said Huabei had
similarities to banks’ credit card
businesses but charged
consumers a much higher
management fee.
“Regulators should investigate
whether the leading FinTech
players have infringed
consumers’ rights to choose and
enjoy fair terms as a result of
their monopoly status,” he said.
DRESSING DOWN
���������������������������������
Monday, when the China
Securities Regulatory
Commission said on its website
that Ant’s top brass had been
summoned to a meeting with a
group of senior regulators.
The CSRC, People’s Bank of
China, CBIRC and State
Administration of Foreign
Exchange held regulatory talks
with Ant founder Jack Ma,
executive chairman Eric Jing and
chief executive Simon Hu.
3 IFR Top news 2358 p2-10.indd 2
06/11/2020 19:30:40
International Financing Review November 7 2020
3
For daily news stories
visit www.ifre.com
@
Watchdogs step up WFH scrutiny 08 Another ION bites the dust 08 Brightline postpones 09
chairman Eric Jing said when
the Chinese digital payments
giant announced the listing plan
in July.
As well as allowing a
broader range of companies,
the Star board offers a
registration-based system, in
which the Shanghai Stock
Exchange is responsible for
vetting the information and
risk disclosure in listing
applications before the
China Securities Regulatory
Commission accepts the
registration.
That is a big departure from
the traditional IPO process in
China’s domestic market, where
the CSRC has full control over
an opaque procedure that often
leaves companies waiting years
for a green light.
Following the success of the
Star market, the Shenzhen
Stock Exchange adopted the
registration-based IPO system
for its ChiNext board in June.
China is planning to roll out the
regime across the entire stock
market at an appropriate time.
CSRC SUPPORT
The CSRC, which had approved
the dual listing less than
three weeks earlier, on
Wednesday defended the
SSE’s decision to suspend
Ant’s IPO, calling it “a
responsible move both for
investors and markets as the
recent regulatory changes
could have a major impact on
Ant’s business structure and
�������������
But many investors hit out at
the timing of the suspension,
which was prompted by a
change to online micro-lending
rules announced on Monday –
after Ant had completed
bookbuilding.
“It is so embarrassing as the
deal has already passed the IPO
review and the IPO registration
with the Shanghai Stock
Exchange and the CSRC. It has
passed all legal procedures,”
said one market observer.
Zhao Xijun, director of
Institute of Finance and
Securities at the Renmin
University of China, said Ant’s
��������������������������������
made regulatory oversight more
important.
���������������������������
business of Ant Group is so
complicated that it needs four
regulators to hold talks at the
same time. This kind of
business complexity requires
clearer information disclosure,”
he said.
On Monday, the CSRC said,
itself, the People’s Bank of
China, the China Banking and
Insurance Regulatory
Commission and the State
Administration of Foreign
Exchange held regulatory talks
with Ant founder Jack Ma,
executive chairman Eric Jing and
chief executive Simon Hu. �
The statement did not give
details of the talks, but the
timing coincided with the
release of draft rules from
China’s central banks and the
CBIRC targeting online micro-
lending, where Ant is a major
player.
The draft rules set new capital
thresholds for micro-lenders
and cap each loan at
Rmb300,000 or one-third of a
borrower’s annual pay,
whichever is lower.
What could hit Ant the
hardest is a proposal that
requires online micro-lenders to
fund at least 30% of each loan
from their own resources,
threatening Ant’s partnership
model.
According to Ant’s
prospectus, as of June 30, about
98% of the Rmb1.7trn consumer
and small and mid-size business
credit balances enabled through
its platform were underwritten
������������������������
institutions or securitised.
“Our approach is not to use
our own balance sheet or
provide guarantees,” it said in
the IPO prospectus.
Ant charges technology
service fees to the about 100
banks, as well as trust
companies, that it partners
with. The so-called “CreditTech”
business was Ant’s biggest
������������������������������
half of 2020, accounting for
39.4% of revenues, up from
24.8% in 2017. Ant’s digital
payment and merchant services
contributed 35.9% of revenues
�������������������������
Under the proposed new rules,
Ant would have to raise its capital
����������������������������
growth of its online micro-lending
business, eating into its margins.
“This could lead to a lower
valuation for the company
when it comes back to market,”
said Brian Freitas, an analyst
who publishes on Smartkarma.
Ant’s IPO had valued the
company at around US$312bn,
more than China’s biggest lender
Industrial and Commercial Bank
of China and more than the
biggest US banks. Analysts at joint
global coordinator Credit Suisse
had forecast a 141% year-on-year
jump in Ant’s 2020 full-year net
���������������������������
another 30% to Rmb56bn in 2021
and 34% to Rmb75bn in 2022.
NEXT STEPS
The last-minute regulatory
intervention left Ant with no
option but to refund investors
while it considers its next move.
“It will take a few months
before Ant can resume its listing
as the company will have to
restructure its business and
apply for new licences to
comply with the new lending
rules before going to the market
again,” said a person with
knowledge of the matter.
Ant said on Thursday it would
fully evaluate its position before
deciding whether to relaunch
the IPO under the 12-month
approval window granted by
the CSRC in October.
“Theoretically, Ant can
relaunch the IPO after
disclosing the risks related to
the new rules. However, it
doesn’t look like the regulators
are purely looking for more
disclosure judging by the timing
and magnitude of their
intervention in the IPO,” said
the person. “Investors will also
ask for more certainty this time.
They will want a guarantee that
the company has cleared all
regulatory hurdles to list on its
second attempt. Increased
disclosure may not be enough.”
���������������������������
have been the city’s largest since
2010. It attracted HK$1.3trn
(US$168bn) of subscriptions from
over 1.5 million retail investors,
�������������������������
popular in the city’s history.
The Rmb114.9bn Shanghai
leg, which would have been
China’s biggest ever A-share
IPO, drew about Rmb19trn of
subscriptions from 5.15 million
retail investors.
CICC, Citigroup, JP Morgan and
Morgan Stanley were sponsors for
Ant’s Hong Kong IPO. The four
banks were global coordinators,
and bookrunners with Credit
Suisse and CCB International.
CICC and China Securities
sponsored the Shanghai Star
listing, and were bookrunners
with Citic Securities, Huatai United
Securities, Shenwan Hongyuan
Financing Services and BOC
International (China). �
260
270
280
290
300
310
320
November
October
September
ALIBABA SHARES SLIP IN NEW YORK
CLOSING PRICE
Source: Refinitiv
US$
3 IFR Top news 2358 p2-10.indd 3
06/11/2020 19:30:42
International Financing Review November 7 2020
4
Top news
Ant agony sees outlook for
China-to-US IPOs brighten
� Equities Ant debacle may increase China-to-US deals, as banks miss major payday
BY THOMAS BLOTT
The derailing of ANT GROUP’s world-
record IPO and the prospects of a
new US administration are likely
to draw more Chinese companies
to the US stock market, market
observers said, as Democratic
candidate Joe Biden closed in on
victory in the US presidential
election.
Bankers were left stunned
after the Shanghai bourse
blocked Ant’s Rmb114.9bn
(US$17.31bn) A-share IPO on
Tuesday, less than 48 hours
before the shares were due to
start trading, following proposed
rule changes around online
micro-lending. Minutes later,
Ant announced that the
concurrent HK$133.6bn
(US$20.12bn) H-share offering
would also be suspended.
The announcements set the
tone for an uncertain week in
global capital markets as the
results from the US presidential
election slowly trickled in.
Concerns about China’s
������������������������������
stage emerged as one of the few
bipartisan issues during Donald
����������������������������
most analysts are expecting a
reset in Sino-US relations if
Biden is elected as he has taken a
consistently less hawkish stance
than Trump towards China in
the build-up to the election.
Market observers said that a
potential Biden presidency
combined with the recent volte-
face by Chinese regulators over
Ant’s listing would increase the
appeal of the US as a listing
venue over China, although they
cautioned that these decisions
usually depend on the type of
issuer involved.
“The decision over Ant coupled
with the possibility of a new
administration in the US that
may be more favourable to
Chinese companies generally will
be factors that issuers consider,
although usually there are very
���������������������������������
selecting where to list,” said one
Hong Kong-based banker.
“Generally speaking,
valuations and secondary
market liquidity are still higher
in the US, although sometimes
there are good reasons why you
might want to list elsewhere. In
Ant’s case, it would have made
less sense to list in the US
because of some of the
regulatory requirements around
their consumer payments
business.”
CHINA-US TENSIONS
Regardless of who wins the US
presidential election, the
outlook for Chinese companies
listing in the US is unlikely to
improve drastically given
bipartisan support for tougher
measures towards Chinese
issuers.
For example, in May, the US
Senate passed legislation that
would force Chinese companies,
including Alibaba Group
Holding and Baidu to delist from
US bourses if they do not comply
with US regulatory and audit
standards.
While more US-listed Chinese
companies, including most
notably Alibaba, JD.com and
NetEase, have been pursuing
secondary listings in Hong Kong
to hedge against the possibility
of being delisted in the US, the
China-to-US IPO pipeline has
remained intact.
At the end of last month,
LUFAX, the Chinese online wealth
management platform that is
backed by Ping An Insurance,
raised US$2.36bn from a New
York Stock Exchange IPO. This
surpassed KE Holdings’
US$2.1bn IPO in August to
become the biggest China-to-US
listing since the US$2.4bn
�������������������������������
service iQiyi in March 2018.
According to data from
��������������������������������
from China-to-US IPOs this year
currently stand at US$10.66bn,
the best year on record since
2014 when total proceeds hit
US$29.01bn, which was largely
skewed by Alibaba’s then world-
record US$25bn IPO.
The damage caused by China’s
delay of Ant Group’s IPO,
purportedly due to changes in
the regulatory environment
following new guidelines
governing FinTech companies
that were introduced on
Monday, could have more
consequences for where Chinese
companies choose to list than
the measures taken by the US.
The decision to introduce a
registration-based system for IPO
approvals on the Shanghai Stock
Exchange’s Star board has been
a critical factor in the start-up
board’s success, market
observers said, and the decision
on Ant, which de facto hands
back control to the regulators on
the timing of IPOs, could deter
other issuers.
AGONY ANT
The decision to postpone Ant’s
IPO will also have major
implications for the banks
involved. Although the overall
fees at around 1% were lower
than what issuers have paid out
on other jumbo IPOs this year,
the size of the deal means that
banks will be missing out on a
major payday.
The Chinese digital payments
giant was due to pay an
underwriting commission of up
to 1%, equal to US$172m at the
base deal size. The fee was set to
go up to US$198m if a 15%
greenshoe were to be exercised
in full.
Combined with the Shanghai
component, which was said to
pay a similar percentage, that
means Ant’s bankers were in
line for a payday approaching
US$400m.
Although the exact split was
������������������������������
would have seen sponsors CICC,
Citigroup, JP Morgan and Morgan
Stanley get the highest
commissions and therefore
would have missed out the most
from the deal being pulled.
The decision to suspend the
deal will also likely have major
implications in terms of league
table credit. Morgan Stanley
already occupies the top spot in
proceeds from equity and equity-
����������������������������
ex-Japan for the year-to-date at
US$23.31bn for a 7.6% market
share.
CICC is currently third with
US$17.45bn in total proceeds for
a 5.7% market share, one place
behind Citic Securities. JP
Morgan and Citigroup could have
done with the credit in particular
from Ant as they currently rank
seventh and eighth respectively.
�����������������������������
those that missed out on the
deal, including most notably
Goldman Sachs, which currently
sits in fourth place in the ECM
league tables with a 5.6% market
share after helping raise
US$17.03bn so far this year. �
“The decision over
Ant coupled with the
possibility of a new
administration in the
US that may be more
favourable to Chinese
companies generally
will be factors that
issuers consider”
“Generally speaking,
valuations and
secondary market
liquidity are still higher
in the US, although
sometimes there are
good reasons why
you might want to list
elsewhere”
3 IFR Top news 2358 p2-10.indd 4
06/11/2020 19:30:46
Investing in ICO Social and Green Bonds means being
part of the country’s sustainable transformation and is
synonymous of future profitability.
ICO is playing a prominent role in ensuring the credit
flow to the business fabric and mitigating the economic
and social impact of the Covid-19 pandemic in Spain.
ICO SOCIAL AND GREEN BONDS
Supporting sustainable growth in Spain
The Kingdom of Spain’s
Financial Agency
3 IFR Top news 2358 p2-10.indd 5
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International Financing Review November 7 2020
6
Top news
Forgiving investors support
Waste Management’s return
� Bonds Short-memory syndrome strikes again as investors let bygones be bygones
BY WILLIAM HOFFMAN
WASTE MANAGEMENT overcame
disgruntled investors and
election volatility on Thursday to
price a US$2.5bn four-part bond
at exceptionally low spreads to
fund its US$4.6bn acquisition of
Advanced Disposal.
The trash and recycling
collection company, rated
Baa1/A–/BBB+, garnered as much
as US$20bn in the order book
�����������������������������
year at 45bp over Treasuries, a
US$500m seven-year at 60bp over,
a US$1bn 10-year at 75bp over and
a US$500m 30-year at 100bp over.
Strong market conditions and
scarcity value in a stable credit
with the highest ratings in its
sector were more than enough
to overcome the consternation
of investors who felt they were
burned by the company earlier
this year.
������������������������
attempt at funding the merger
came in May 2019 when it priced
���������������������������������
the close of the acquisition was
delayed and triggered a special
mandatory redemption (SMR)
clause in July this year.
The company could have
renegotiated the SMR clause with
investors, but it became attractive
to redeem the debt when Treasury
rates fell to historic lows due to
the pandemic.
In July, Waste Management
was able to redeem four series of
notes totalling US$3bn at a
dollar price of 101 at a time
when the bonds were trading as
high as 110.
Despite annoying investors at
the time, Waste Management is
���������������������������������
���������������������������
company was able to redeem
coupons ranging from 2.95%–4%
and replace them with coupons
ranging from 0.75%–2.5%.
“It says that people may not
care as much around the SMR,
despite the arguments made in
July, and it says the market feels
really bullish after the election,”
said a lead banker on the trade.
FOOL ME ONCE
With the delayed acquisition
completed on October 30, the
company returned to the bond
market on Thursday to repay a
US$3bn revolving credit facility
������������������������������������
redeeming the bonds in July.
Investors lost a lot of money
because of the special
redemption of the bonds but any
hard feelings were overlooked
given the demand for new paper.
“They got lucky, and if there
were more bonds than cash you
could bet there would be a lot
more scrutiny on the company’s
governance,” said David Knutson,
head of credit research at
Schroders and vice-chairperson
of the Credit Roundtable, which
openly criticised the company’s
actions earlier this year.
“There are some investors who
will say, ‘fool me once shame on
you, fool me twice shame on me,’
and so they might not engage
Pipeline fills up as markets
shrug off US election disputes
� People & Markets Four issuers hit bond markets, as others plough ahead with listings
BY GARETH GORE
It took only a few hours for new
deals to return to the primary
markets, as investors reacted
calmly while votes were counted
– and tensions escalated – in the
US presidential election, with
stocks and bonds seemingly
numbed by trillions of dollars of
central bank support over recent
months.
Chinese real estate developer
JINGRUI HOLDINGS and Spanish
construction and airport
company FERROVIAL ��������������
to dip their toes into the bond
market early on Thursday. At the
US open, they were joined by
two more issuers: WASTE
MANAGEMENT in the high-grade
space and high-yield credit
ANTERO MIDSTREAM.
In the equity world, issuers
also ploughed on regardless.
SUNAC SERVICES said it would open
books on its US$1bn Hong Kong
listing, while in London
reinsurer CONDUIT announced its
own plans for an IPO.
Meanwhile, AIRBNB is widely
��������������������������������
early as next week.
The early return of deals
comes after markets largely
shrugged as it became clear that
Trump would contest a Joe Biden
victory. Stock markets actually
rallied as the standoff played out
on Twitter and television, while
yields on sovereign and
corporate bonds fell.
Bankers had advised issuers to
steer clear of doing anything this
week, for fear of possible
turmoil in markets. But many
ditched that advice after seeing
the resilience of markets and
advised those that could to bring
forward their issuance plans to
take advantage of the
conditions.
“Everyone was expecting the
markets to be shut with an
unclear election result like this,
so a lot of companies made sure
they had done the funding
needed to do ahead of the
event,” said Marco Baldini, head
of European bond syndicate at
Barclays.
“Clearly, if this very strong
market tone holds then
companies will be tempted to
come back into the market – but
will take a few days for that to
happen,” he said, adding that a
shortened week with the
Veterans Day public holiday in
the US might be a hurdle to
issuance next week.
Still, so long as current
conditions continue to hold,
bankers expect a rush of
issuance in the one remaining
full week before the
Thanksgiving holiday at the end
of the month. After that, there
are only three more full weeks
before the end of the year,
making the window a short one.
MARKET RESILIENCE
The resilience of markets in the
face of uncertainty has been the
story of much of the year. The
pandemic has wrought human
and economic destruction across
the planet, yet stock markets in
the US and China – countries
both heavily impacted by the
virus – are up in the year to-date.
Central banks’ largesse is mainly
to thank for that. Faced with
recession, they have pumped
trillions into markets. That looks
set to continue: the Bank of
England unveiled another £150bn
of bond purchases on Thursday,
while more is coming from the
European Central Bank next
month.
In Europe, a couple of big names
are already set to print deals next
3 IFR Top news 2358 p2-10.indd 6
06/11/2020 19:30:50
International Financing Review November 7 2020
7
For daily news stories
visit www.ifre.com
@
Banks cheer status
quo election result
� People & Markets Chances of regulatory change falls
BY PHILIP SCIPIO
US bank executives are breathing
easier after the predicted
Democratic wave in the 2020 US
election failed to materialise.
While polling and political
pundits predicted that Democrat
Joe Biden would unseat Donald
Trump and his party would seize
control of both chambers of
Congress in the November 3
election, as of Friday the opposing
Republican party looked likely to
retain control of the Senate.
That means, should Biden
prevail in his race to take the
presidency, he will have a tougher
time enacting a legislative agenda
����������������������������������
industry – such as raising
corporate taxes, strengthening
bank regulations to boost capital
requirements, or more aggressive
measures like limiting the size of
the biggest banks. There were
fears he could push to break-up
systemically important banks
outright, as had been called for by
Senator Elizabeth Warren.
But without taking control of
the Senate, Biden would not
������������������������������������
positions in his administration –
like treasury secretary – without
negotiating approval from the
opposing party. That would
exclude most candidates not
seen as mainstream.
Shares of the largest US banks
surged following the election,
including JP MORGAN, CITIGROUP
and BANK OF AMERICA.
“Progressives had their wings
clipped and a Republican Senate
could be a check on overly
progressive nominees” said Stifel
political analyst Brian Gardner.
������������������������������
already were that neither
Senators Elizabeth Warren nor
Bernie Sanders will get cabinet
posts [if Biden wins],” he said.
Self-described socialist senator
Sanders challenged Biden for
the Democratic nomination
from the left and was seen as a
contender for a cabinet post.
“Even if Biden wins, the
chances of sweeping regulatory
changes have been reduced,”
said Gardner.
GRIDLOCK WORRY
More potentially negative for
Wall Street is that a Biden Justice
Department could take a more
aggressive look at mergers and
acquisitions. “M&A will receive
heightened scrutiny if Biden
wins,” said Gardner.
That’s not the only cloud on the
horizon. While gridlock may stop a
Biden administration from
enacting dramatic regulatory
changes that harm banks, that
same gridlock could keep Biden
from standing up an economy
battered by the Covid-19 pandemic.
“A Biden presidency with a
Republican-led Senate likely
���������������������������������
UBS Americas chief investment
�����������������������
“The expected election outcome
is mixed to slightly negative for US
�������������������������������������
“The next stimulus package is
likely to be lower than would have
been the case in a Blue Wave,
weighing on interest rates.” Bank
stocks are highly correlated with
interest rates.
And while Biden will be
restrained from making radical
choices for his cabinet, he would
still name new regulatory
leadership that could interpret laws
and regulations in a less industry-
friendly way, Marcelli said.
And then there’s the so-called
Bully Pulpit. Using the power of his
����������������������������������
considerable pressure on banks
without making progressive
appointments in his administration
or the regulatory agencies.
The low-hanging fruit could
be to pressure the Fed to extend
its moratorium on banks buying
back their stock.
“I think Biden will move to
restrict stock buybacks,” said
Odeon Capital bank analyst Dick
Bove. Bank dividends, however,
are expected to be safe. �
here, but there is an
overwhelming factor that there is
a lot of cash looking for a home.”
One lead banker said they
expected investor pushback but
were ultimately able to tighten
��������������������������
company’s existing credit curve
with spreads moving 25bp–35bp
tighter through price progression.
Waste Management’s 4.15% July
2039 is its most recent outstanding
bond and is the one tranche from
�����������������������������������
have an SMR clause. It was last seen
trading at a G-spread of around
114bp, which is 14bp wide to
where the company’s new 30-year
note landed.
“Theoretically there is less
scarcity in the long bond, and yet
the new 30-year had the largest
book,” the lead banker said.
ELECTION UNCERTAINTY
The decision to announce the
deal on Thursday morning
before a winner was declared in
the US presidential election
provided additional headwinds.
Yes, secondary credit spreads
have rallied following election
day, but the uncertainty of
protests, prolonged litigation
and control of the Senate still
hang over the market.
“We had a couple corporates in
the queue this morning, but most
were cautious given the Fed
meeting Thursday and non-farm
payroll employment numbers on
Friday,” one syndicate banker
away from the deal said.
Still, many investors had this
deal lined up in their pipeline
after the acquisition closed on
October 30 and Waste
Management had the market all
to itself as the lone issuer on the
day, the lead banker noted.
Barclays and Mizuho were lead
billing and delivering
bookrunners on all four tranches
with Bank of America, BNP Paribas,
Citigroup, Deutsche Bank, JP Morgan,
MUFG, Scotia, SMBC and US Bank
acting as as lead bookrunners on
various tranches. �
week – the European Financial
Stability Facility and European
Union are both expected. There
has also been talk of a US dollar
deal from Spain. Bankers say that
more opportunistic issuers could
join the pipeline.
“I’m optimistic we will see
���������������������������������
global head of debt capital
markets at Credit Agricole. “But
a lot of corporates have done
�������������������������������
are sitting on comfortable cash
positions; there’s no pressure to
press the button.”
“A corporate treasurer, though,
could see another round of
lockdowns, and with some
degree of conservatism will think
this is a chance to put more
money in the bank,” he added.
France, Italy, the UK and
Greece are among countries to
impose new restrictions in
recent days.
Some issuers might actually
������������������������������������
– a Democrat president but with
Republicans retaining control of
��������������������������������
to them. Energy and technology
companies worried about new
onerous regulation under a Biden
administration may now be
breathing a sigh of relief.
One of the lesser-watched
votes to take place on Tuesday
might also open the door to
some new issuers hitting bond,
loan and equity markets.
Arizona, Mississippi, Montana,
New Jersey and South Dakota all
voted to ease state laws on the
consumption of marijuana.
Additional reporting by Robert
Hogg in London �
S&P 500 IS UP YTD
CLOSING LEVEL
Source: Refinitiv
2,000
2,500
3,000
3,500
4,000
Nov
Sep
Jul
May
Mar
Jan
2020
Points
3 IFR Top news 2358 p2-10.indd 7
06/11/2020 19:30:52
International Financing Review November 7 2020
8
Top news
Another ION bites the dust
� Loans Financial data firm suffers second leveraged loan blow after investors reject aggressive terms
BY AARON WEINMAN, CLAIRE RUCKIN
ION ANALYTICS postponed its
�����������������������������
volatility from the US presidential
elections, but its track record of
�������������������������������������
questioning whether politics was
the sole reason for the decision to
withdraw the deal or if the
company’s aggressive Ebitda
adjustments and chequered
history in the leveraged loan
market played a part.
ION Analytics, a newly created
unit of ION GROUP that combines
�����������������������������
Dealogic and Acuris, launched
���������������������������
October 22 and was supposed to
wrap up the transaction by
November 2, yet the deal was put
on hold on November 3. It is set
to be completed when markets
are more stable and constructive.
Several market participants
disputed the claim that volatility
was the real reason the deal was
put on hold, since other deals
were completed in the run up to
the election.
“Other deals got done and at
tighter spreads. ION’s adjustments
to Ebitda were very aggressive and a
lot of people declined on that basis.
With no primary in the loan
market, people have been looking
for paper and despite some ebbs
�����������������������������������
up very well,” a senior investor said.
A second investor added: “Both
the company’s businesses are
decent, but the credit agreements
do contain a lot of Ebitda
adjustments and this is something
investors have to buy into so that
brings more risk to the table.”
TIGHT TERMS
The seven-year covenant-lite loan
comprised a US dollar-denominated
tranche and a euro-denominated
tranche. Both tranches were guided
at 425bp–450bp over Libor/Euribor.
The dollar tranche was offered with
����������������������������������
euro tranche was offered with a 0%
������������������
Credit Suisse was arranging the
euro tranche, while UBS led the
dollar tranche. UBS was agent.
Investors pointed to the fact
that pricing was 50bp–75bp
lower than what they wanted on
the deal and that the two banks
were too aggressive on what
they thought they could deliver.
“The US elections are an
excuse. They over-promised the
level they could achieve in the
loan market and they couldn’t
deliver anywhere near that,” a
syndicate head said.
����������������������������
Group has faced a setback in the
loan market.
In April 2019, unit ION
CORPORATES launched a
US$2.21bn loan to back the
������������������������������
three software businesses –
Openlink, TriplePoint and Wall
Street Systems – known
collectively as ION Systems. The
Watchdogs step up WFH scrutiny
� People & Markets “If there was a set up that would encourage people to act badly, you would set it up to look like this”
BY STEVE SLATER
Banking watchdogs and supervisors
are stepping up scrutiny of
technology and compliance
infrastructure for bankers working
from home and are on the lookout
����������������������������������
trading on their own account or
using personal phones.
Banks, asset managers and
supervisors are also accelerating
the use of data and trading
analytics to look for problems,
making up for where
communications and surveillance
tools of the past are less useful –
and easily sidestepped – in a
remote working environment.
Indeed, next week the US
Commodity Futures Trading
Commission will merge its data
and technology arm with its
market oversight operations
into a new Division of Data. The
agency has said data analytics
are now advanced enough that it
could bring enforcement action
using just trading analysis.
This year’s shift to working
from home practices across the
���������������������������������
to continue well into 2021 after
new lockdown restrictions were
imposed in Britain and other
European countries – have raised
regulators’ concerns about where
they may have blind spots to
potential misbehaviour.
“I think it’s hard to overstate the
increase in risk,” said David
Hesketh, co-founder and chairman
�������������������������������
company TradingHub.
“If there was a set-up that
would encourage people to act
badly, you would set it up to look
like this. A lack of observation,
people working from home, low
visibility on where they are at
what time, no access codes on
doors, no coverage of telephones,
no Faraday cages in people’s
houses, end-to-end encryption
available – that is how you’d set it
up,” Hesketh told IFR.
DOUBLE WHAMMY
Banks have ramped up spending
����������������������������������
�����������������������������
billions of dollars for wrongdoing.
But even those enlarged teams
have been stretched since March
by helping set up remote working
practices for staff.
����������������������������
Hesketh said. “So there has
probably been reduced capacity
for oversight at a time when there
was increased risk of malfeasance.
That’s a bit of a double whammy.”
Regulators say they are aware
that problems may have emerged
from the shift to working
remotely and some have signalled
they will intensify efforts to get on
top of them. They recognise a
�������������������������������
become a permanent feature of
the industry.
Randal Quarles, head of
supervision at the US Federal
Reserve and chair of the
Financial Stability Board, last
month said supervisors were
adapting practices and were on
the lookout for problems in the
new environment.
“As we’re now moving into the
eighth month [since the
pandemic forced many to work
at home], the weaknesses are also
now becoming apparent and it’s
��������������������������
supervisors,” Quarles said at a
virtual conference hosted by the
Institute of International Finance.
“It will be a high priority for us,
both in our own practices and in
looking at the banks.”
“It requires the institutions …
to now realise they have to have
both a technical and compliance
infrastructure that can do this
for an extended period of time,”
Quarles said.
���������������������
themselves have been pleased
with how the industry adapted
to working remotely. There were
early teething problems,
industry sources said, but most
������������������������������
coped well – especially in light
of record trading and capital
markets issuance.
But some problems have
emerged, including a rise in
personal account trading, said
Julia Hoggett, director for
market oversight at Britain’s
Financial Conduct Authority.
�����������������������������
increase, particularly amongst
slightly younger generations, in
the opening of new personal
trading accounts over the course
3 IFR Top news 2358 p2-10.indd 8
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