AUGUST 1 2020 ISSUE 2344 www.ifre.comLOANS Lenders eye £5bn debt deal as Asda sale resumes 06 BONDS A$15bn Aussie jumbo lures global funds down under 08 Rocket begins countdown to US$3
Trang 1AUGUST 1 2020 ISSUE 2344 www.ifre.com
LOANS
Lenders eye
£5bn debt deal
as Asda sale resumes 06
BONDS
A$15bn Aussie jumbo lures global funds down under 08
Rocket begins countdown to US$3.3bn IPO:
deal set to be largest corporate listing this year
China-to-US IPOs hit top gear: Li Auto raises
US$1bn from Nasdaq float; others set to follow Delek to exterminate maturities: energy outfit readies US$2.25bn deal to fund gas field
Trang 2lpc.info@tr.com
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Trang 3International Financing Review August 1 2020 1
A cautionary tale
A multi-billion dollar settlement from Goldman Sachs and a
12-year prison sentence for Malaysia’s former prime
minister provide just the latest dramatic developments in
1MDB’s capital markets misadventures.
Some readers of this magazine may remember early
descriptions of 1MDB’s bond market activities IFR’s June 1
2012 edition carried the headline “Mystery over jumbo
1MDB deal”, and a piece questioning why a Malaysian
sovereign fund had overpaid for a US$1.75bn bond by
perhaps as much as 240bp (a cool US$420m of unnecessary
interest over the 10-year term).
Murky private placements and loans dressed as
bonds were at the time sadly all too common in the Asian
debt capital markets, where banks still compete tooth and
nail to be top of the underwriting league table A US$1.75bn
sole mandate took that to the next level, but could,
perhaps, be explained by Goldman’s role helping 1MDB
purchase a portfolio of power assets at the time The
under-the-radar placement of another US$1.75bn bond issue in
2012, also arranged by Goldman, came with no such
explanation.
When news of a US$3bn private placement leaked out in
the run-up to the country’s general elections in May 2013 it
was even clearer that something was seriously amiss The
deal was so mispriced that IFR’s Jonathan Rogers calculated
'OLDMANûCOULDûHAVEûMADEû53MûBYûSIMPLYûmIPPINGûTHEû
bonds to buyers at a market rate (He wasn’t far off: the US
Department of Justice calculated Goldman pocketed about
US$600m from its work on 1MDB’s bonds.)
The fact that 1MDB was willing to offer those kinds of
discounts to access the capital markets should have set
alarm bells ringing immediately.
Explanations at the time were unconvincing 1MDB
needed money quickly, conventional bookbuilds weren’t
possible, and the bonds came with some complex
structuring Even if all that was true, a genuine sovereign
fund should never have been allowed to be so frivolous
with taxpayers’ money, and in hindsight it’s clear the only
“structuring” involved was making the proceeds disappear
Those explanations have not got any more convincing even
if Goldman was still advancing them long after the scandal
broke.
Goldman’s role in this debacle has now cost it at least
US$2.5bn, perhaps with more to come That settlement must
now serve as a warning to others who may be tempted to bag
bond issue Risk committees must ask why any client would
be willing to pay so much for their services If it looks too
good to be true, it almost certainly is.
That lesson applies for the capital markets more broadly The arrangers and other intermediaries that bring a deal to market have a duty to act with integrity, promote transparency and ensure fair pricing They must act as gatekeepers, not look the other way when something doesn’t add up.
As for Goldman, there are still calls for the bank to face criminal charges in the US for its involvement in the scandal
As executives – and shareholders – count the immense cost
of their Malaysian misadventure, there may be more painful lessons yet to come.
Listing in la-la land
Nine IPOs were completed in the US in the last week of July
to raise proceeds of US$5bn Four were SPACs, but there was 53BNûTRADEûFROMû,Iû!UTO ûANDûTHEûlRSTû"RAZILIANûCOMPANYû
to list in the US since the coronavirus hit (“edutech”
company Vasta Platform).
Away from the companies tapping into excitement around the cloud, medicine and electric vehicles was Vital Farms, an organic egg supplier It was the sleeper success of the week with an upsized deal that priced above guidance that had already been revised up The shares promptly traded up 63.5% on their debut.
And then came former Citigroup banker Michael Klein, who raised US$1.8bn in the most aggressively structured SPAC yet in the US – and his fourth to-date.
Far from slowing down for the summer, the next few weeks look similarly intense.
Rocket Companies is bookbuilding for what is likely to be the world’s largest non-SPAC IPO this year, with proceeds of
up to US$3.3bn comfortably exceeding the US$2.9bn
!MSTERDAMûmOATûOFû*$%û0EETSûANDûTHEû53BNûRAISEDûBYû Royalty Pharma in the US.
Li Auto is also set to be overshadowed within weeks as Chinese property listing service KE Holdings has started pre- marketing a US$1bn–$2bn NYSE listing.
And nine companies are again scheduled to price IPOs in the coming week, putting the US market well ahead of the rest of the world.
Given everything that is going on in the US and the rest of the world at the moment, some might think that all this is the clearest sign yet of utterly mad markets And yet with US IPO RETURNSûEXCEEDINGûûSOûFARûTHISûYEARûINVESTORSûAREûBENElTINGû from a market awash with central bank-induced liquidity.
At some point the market will turn, but as it stands the biggest losers look set to be European and Asian exchanges trying to argue that anywhere other than the US is the best place to list.
Trang 4International Financing Review August 1 2020
2
Top news
China-to-US IPOs hit top gear
Equities Li Auto blockbuster shows deals accelerating despite bilateral tensions
BY FIONA LAU
Sizeable IPOs from Chinese
companies are gathering pace in
the US, with electric vehicle
maker LI AUTO wrapping up the
largest China-to-US listing since
2018 and property listing service
KE HOLDINGS starting pre-marketing
for a US$1bn–$2bn NYSE IPO
The moves underline the
continuing appeal of the
American stock market despite
the passage of legislation by the
US Senate that could force
Alibaba Group Holding, Baidu
and other Chinese companies to
delist from US exchanges if they
do not comply with US
regulatory and audit standards
Li Auto, backed by Hong
Kong-listed Meituan Dianping, last
Wednesday raised US$1.09bn from a Nasdaq IPO comprising 95m American depositary shares
at US$11.50 each, above the US$8–$10 range
The deal generated strong DEMANDûDESPITEûAûlNALûVALUATIONû
of about US$9.9bn, more than double the US$4bn price tag the company achieved when it closed a US$550m pre-IPO round
as recently as July 1
The books were well covered with no price sensitivity, with large orders from global long-only funds and sovereign wealth funds, as well as hedge funds
“US-listed EVs have traded well recently as investors expect
a strong recovery in the global
EV market Li Auto’s valuation looks rich but it’s still way below
where its peers are trading,” said
a banker on the deal
Shares in Nio, another listed Chinese EV maker, hit a record US$16.44 on July 13 As of last Wednesday, the stock had risen 216% this year, valuing the company at US$15bn Shares in US-listed EV giant Tesla were up 258% in the year to-date
US-US investors are also keen to look at new issues
“I’m sympathetic to how tired everyone is, but the buyside is still lagging their benchmarks,”
said a senior ECM banker “As long as that continues to be the case, they’re going to be forced to look at all the new issue product
we put in front of them.”
Those who bet on Li Auto were instantly rewarded as the
stock rocketed 43% on its trading debut last Thursday
Alongside the IPO, Li Auto will raise US$380m from a private placement to investors including Meituan and TikTok owner ByteDance
Goldman Sachs, Morgan Stanley, UBS and CICC were the
bookrunners
THEY KEEP COMING
KE Holdings, which owns and operates realtor Lianjia and online service platform Beike, is the next big deal in the queue
The company, which counts Tencent Holdings and SoftBank among its investors, is pre-MARKETINGûAû53BNnBNûmOAT
XPENG MOTORS, another Chinese
EV maker, is also planning to
Rocket begins countdown to IPO
Equities Top mortgage lender in the US targets 25% of US$2trn market
BY STEPHEN LACEY
3URGINGûRElNANCINGûACTIVITYû
during the Covid-19 pandemic
means mortgage originator
ROCKET COMPANIES could be
accused of top-ticking the
market with its upcoming
US$3.3bn IPO Yet as
something of a cash cow while
interest rates are low and/or
falling, investors are rushing to
embrace the investment
opportunity
Rocket, the parent of Quicken
Loans, plans to sell 150m shares
at US$20–$22 for a valuation of
up to US$44bn
The offering represents just a
7.5% stake but would be the
largest corporate IPO globally
this year, topping both the
US$2.9bn offering by JDE PEET’S
on its Euronext Amsterdam
listing in May and the US$2.5bn
raise by ROYALTY PHARMA on its
Nasdaq listing in June
The largest mortgage lender
in the US undertook an extensive pre-marketing exercise that enabled it to launch publicly on Tuesday morning with a “half-covered”
message
Goldman Sachs, Morgan Stanley, Credit Suisse, JP Morgan, RBC Capital Markets, the joint books
leading a 20-bank underwriting syndicate, are following with a seven-day virtual roadshow ahead of pricing after the market close on August 5
“We still have a long way to go,” one banker involved in the underwriting told IFR shortly after launch “There were substantial indications at launch, but we didn’t ask for lRMûORDERSv
SHOOTING FOR THE STARS
Rocket is riding a boom in mortgage originations, mainly RElNANCING ûTHATûSAWûITûWRITEû
US$72.3bn of loans in the second quarter New loans reached US$26bn in June to maintain sequential gains in every month this year
These numbers leave with it a hefty 9.2% share of all US mortgage originations PennyMac Financial Services, the second-largest private originator, has a 2.8% market share
.OTûSATISlEDûWITHûTHAT û2OCKETûmanagement said in the roadshow they believe they can eventually lift their share to 25%
of what is a US$2trn market annually
In the year ended June 30, Rocket pumped out net earnings and adjusted Ebitda of US$4.2bn and US$5.3bn on revenue of 53BNû2EmECTINGûTHEûRECENTûprogress, net earnings were US$3.5bn–$3.6bn on revenue of 53BNnBNûINûTHEûlRSTûSIXûmonths of 2020, based on preliminary results
Everyone, including management, acknowledges the good times will not last forever
To that end, Rocket management did not provide guidance to analysts at the underwriting banks, leading to a wide dispersion of forecasts on both the buy-side and sell-side
“The tricky part is what mortgage originations are in any given year, and what is Rocket’s market share,” said a second banker involved in the deal
“Most investors agree that there will be a slowdown in 2021, before mortgage originations normalise in 2022.”
“Rocket has the potential to re-rate how mortgage originators are valued,” the second banker said
PennyMac, which relies more
on wholesale channels, trades at just 7.8-times 2022 earnings
Rocket views itself more as a best-in-breed market share
Trang 5International Financing Review August 1 2020 3
For daily news stories visit www.ifre.com
British Airways and Iberia owner
IAG will launch a €2.75bn rights issue in September if
shareholders approve the deal
The airlines’ owner, which also has Vueling and Aer Lingus
in its portfolio, has secured crucial backing from main shareholder Qatar Airways to cover its 25.1% pro-rata share while the rest has volume
underwriting from Deutsche Bank, Goldman Sachs and Morgan Stanley
Rothschild is advising IAG An
EGM to approve the deal will be held on September 8
IAG reported an operating loss OFûõBNûINûTHEûlRSTûHALFûOFûTHEûyear on Friday, from a €1bn PROlTûINûTHEûlRSTûHALFûOFû ûAFTERûPASSENGERûTRAFlCûFELLûBYûover 98% in the second quarter
The news came in a tricky week for European travel and aerospace stocks, with shares plummeting amid rising concerns of an upsurge in coronavirus cases and new quarantine measures imposed
on Britons arriving from Spain
DROP IN ALTITUDE
IAG shares were already down 14.5% since it was forced to OFlCIALLYûmAGûTHEûPOTENTIALûcapital increase on July 24 after news of the deal leaked, and fell
a further 7.3% by 2pm on Friday
to trade around 167.7p each
Although one banker involved
in the IAG rights issue insisted that the leak was frustrating, a drop in THEûSHAREûPRICEûBEFOREûlXINGûunderwriting terms does help to de-risk the trade for the banks
Yet all stocks in the sector have suffered heavy falls, with Easyjet down 13.5% over the same period, Lufthansa 10.6%
IN IT FOR THE LONG HAUL
In addition to rising coronavirus cases and quarantines hitting stocks in the short term, the International Air Transport Association predicted global passenger demand will not return to 2019 levels until 2023, making a wave of
recapitalisations inevitable
“There’s no question that the most expected primary raises are across the travel and leisure space,” said one banker “People are looking out at least two years and for the worst-case scenario.”IAG laid out its downside scenario as a 66% reduction in passengers for 2020, a slow recovery throughout 2021, as well as reduced revenue from cargo and an adverse near-term WORKINGûCAPITALûPROlLE
“What’s happened here is an unprecedented event in aviation – worse than 9/11 and the lNANCIALûCRISIS vûSAIDû3TEPHENûFurlong, transport and logistics analyst at Davy
In light of where stock prices have gone, other options like a convertible bond or 20%
accelerated capital increase didn’t provide the capital structure and liquidity for the downside scenario as this rights issue has done, said Furlong
Bankers echoed the idea that investors are keen to see companies prepare for the (latest) worst-case scenario
“Looking at Rolls-Royce or IAG, if you can put the bear case out there and get investors comfortable on the discounted rights issue there is potentially a meaningful upside,” said one European syndicate banker away from both companies.
pre-market a US$700m US IPO
in August while Chinese online
wealth management company
LUFAX is looking to launch a
US$2bn–$5bn US IPO later this
year
The surge in US listings comes
even as heightened political
tensions between China and the
US have prompted some Chinese
issuers to rethink their IPO plans,
and as an increasing number of
US-listed Chinese companies
consider a secondary listing in
Hong Kong as a back-up plan
Some are taking things a step
further with plans to delist from
the US, potentially with a view to
re-listing closer to home Tencent
Holdings last week offered to
take search engine SOGOU private
in a US$2.1bn buyout, while the
founders of online travel giant
TRIP.COM are seeking investors to
support a possible delisting
Despite all the negativity, the
53ûREMAINSûTHEûlRSTûCHOICEûFORû
many Chinese issuers, especially from the capital-intensive technology sector
Li Auto – much like Tesla – is likely to need to raise capital regularly to develop new models, while KE needs continuous investment to upgrade its platforms
+%SûREVENUEûINûTHEûlRSTûTHREEûmonths of 2020 dropped 12.7%
year-on-year to Rmb7.1bn (US$1.01bn), due to slow demand for housing transactions amid the coronavirus pandemic
Tencent owns a 12.3% stake in
KE, SoftBank 10.2%, and Hillhouse Capital 5.3% The company completed a US$2.4bn pre-IPO investment round in March that valued it about US$14bn
As of June 30, it had more than 42,000 stores and 456,000 agents
Goldman Sachs, Morgan Stanley, China Renaissance and JP Morgan
are KE’s joint bookrunners.
consolidator along the lines of
online broker Charles Schwab,
insurer Progressive or
Californian high net-worth
bank First Republic, which trade
at 15–18 times 2022 earnings
Rocket is coming at a
discount to these aspirational
peers, but that still assumes
further market share gains,
according to both bankers
LIQUID FUEL BOOSTER
Giving it some extra sex appeal,
Rocket’s marketing effort
positions the company as a
disruptor of the
mortgage-origination business
“We think of speed as a
weapon,” Rocket COO Robert
Walters said in the online
roadshow “No-one gets a
mortgage because it’s fun They
want to buy a home, or they
want to lower their rate, or they
want to take equity out of their
home The entities that can get
there the fastest are going to
win.”
Speed is achieved through
ALGORITHMSûTHATûGUIDEûWORKmOWû
in processing mortgages, from
assessing consumer credit, property valuations and title – more than 100 steps in all The analogy, Walters says from the company’s headquarters in Detroit, is the assembly line Henry Ford pioneered in 1913
Rocket sells the bulk of originations into the secondary market through Fannie Mae/
Freddie Mac and MBS securities, but has retained servicing on the majority of loans in an effort
to retain customers It held servicing rights to 1.8m mortgages with a US$343.6bn balance at March 31, and in
2019 had client retention of 63%, versus an industry average
of 22%
This is all a good thing for Rocket founder and chairman Daniel Gilbert
In addition to the US$3.3bn
he will harvest through the repurchase of stock from the proceeds of the IPO, 58-year-old Gilbert is being paid a US$3.9bn distribution He will continue to own 1.8bn shares worth some US$36bn, crystallising his status among the richest of the rich.
Trang 6International Financing Review August 1 20204
Top news
Delek hopes to exterminate looming
maturities with jumbo bond trade
Emerging Markets Israeli energy outfit poised to sell US$2.25bn of bonds to fund Leviathan gas field
BY ROBERT HOGG
In what is set to be one of the
biggest non-investment-grade
corporate deals of the year,
Israel’s DELEK DRILLING plans to
raise US$2.25bn this week for its
Leviathan gas project as it faces
up to a looming wall of
maturities
The transaction, split across
senior secured tranches, will
“It’s a big size at this time of
year,” said a banker away from
the deal “It will probably get
done okay but I have a feeling
they might have to throw a bit of
value out there They seem very
KEENûTOûGETûTHISûRElNANCINGûdone.”
The company faces over US$2bn of maturities in the next six to 12 months, including a US$1.75bn four-year CONSTRUCTIONûLOANûlNANCINGûfrom 2017 that matures in February 2021
Delek, which has a 45.34%
STAKEûINûTHEû,EVIATHANûlELD ûALSOûhas a US$300m secured term loan maturing in December
2020 and a US$400m unsecured bond maturing in December 2021
These debts, combined with a fall in natural gas and oil prices this year, were weighing on the group In March, Delek Group Ltd, the controlling shareholder
of Delek Drilling, reported that
it had breached certain loan covenants because of the falling
equity market value of Delek Group and Delek Drilling, according to Moody’s
Delek Drilling’s shares slumped to NIS228 (US$66.80) by from close to NIS960 in early January
QUALITY ASSET
Its share price has since partially recovered to NIS410 after Chevron said in July that it planned to buy oil and gas producer Noble Energy in a US$5bn deal Noble has a 39.66%
STAKEûINûTHEû,EVIATHANûlELDûANDû
is the project’s operator
Chevron’s announcement was welcomed by bondholders who are weighing up Delek’s new issue “We believe this asset is high quality and the operator, Chevron, is best in class,” said
John McClain, portfolio manager
at Diamond Hill Capital Management
“Chevron’s acquisition of Noble was meaningfully driven
by acquiring this asset The quality is reasonably well understood and in terms of the operator they are one of the most technically sound in the world.”
The bonds, rated Ba3/BB–/BB, all have non-call life structures and none will be below US$500m
Initial price thoughts are in the 5.875% area for the three-year, the 6.375% area for the the seven-year and the 7.25%
area for the 10-year note
Investor calls, which began on July 27, continue through to August 3
Synthetic CDO market grows
despite rising defaults
People & Markets Tranche trading rockets during market turmoil
BY CHRISTOPHER WHITTALL
Sharp market swings and rising
bankruptcies have failed to
dampen activity in a complex
breed of credit derivatives that
enable investors to take
leveraged bets on company
defaults
The net size of the market for
tranches of synthetic
collateralised debt obligations
linked to credit indices has
increased to a four-year high of
US$141bn, according to the
$4##û4HATûCOMESûAMIDûAûmURRYû
of trading, with volumes of
tranched credit-default swap
indices rising 45% annually in
But that challenging backdrop, which has improved
notably since central banks intervened to prop up corporate bond markets, has done little to dent demand for this
controversial breed of structured credit investment
“We’ve seen people re-engage with the market and we’re seeing new people looking to get involved,” said Olivier Renart, global head of credit trading at BNP Paribas
“When you have a bit of spread and a clear dispersion between sectors – the haves and the have-nots of the crisis – tranches become an interesting product.”
DARKENING OUTLOOK
Trading in synthetic CDOs plummeted after the 2008
lNANCIALûCRISIS ûNOTûLEASTû because of the role some types
of this product played in spreading sub-prime mortgage losses throughout the system
But activity has surged in recent years in synthetic CDOs that carve up pools of credit-default swaps linked to corporate debt, as low interest rates have encouraged investors
to consider more complex investments
Investors in the riskiest tranches of these structures earn the highest returns, but are on THEûHOOKûlRSTûFORûLOSSESûRESULTINGûfrom any companies in the CDS portfolio going bust
When a darkening default outlook in March wreaked havoc
“We’ve seen people re-engage with the market and we’re seeing new people looking to get involved”
Trang 7International Financing Review August 1 2020 5
For daily news stories visit www.ifre.com
@
“Feedback has been very
constructive,” said a banker
close to the deal “Investors
appreciate the transparency on
the size and maturities so they
can take their time to analyse
The banker close to the
deal said that before those
calls began, Delek’s
management had undertaken
a more informal marketing
process “It wasn’t obvious
that this deal would go well
with investors so they did
a non-deal roadshow,” he
said
DEPENDENT
The Leviathan project, which
has an operating life of more
than 30 years and which Delek
values at US$10.5bn, started
producing gas last year and
supplies Israel (A1/AA–/A+),
Egypt (B2/B/B+) and Jordan (B1/
B+/BB–)
The biggest market is Egypt, which accounts for 35% of revenues “Given the proposed bond structure is a project lNANCEûTYPEûOFûBOND ûTHEûDEBTûservice coverage will be completely dependent on Egypt making its gas purchases and paying them
in a timely manner, at least in THEûNEXTûTHREEûTOûlVEûYEARS ûwhen Israeli demand picks UPûANDORûTHEYûlNDûOTHERû routes to export gas,” said an investor
He said the best pricing reference point was therefore the Egyptian sovereign Egypt has June 2025 bonds bid at a yield of 5.65%, for example, which is 72.5bp inside where
Delek has begun offering its Moody’s said Delek’s rating BENElTSûFROMûTHEûOFFTAKEûagreements covering a substantial share of production until 2030, including minimum prices that mitigate exposure to weak Brent oil prices
“However, the value of these agreements is limited by the weak credit quality of the offtakers, the largest of which are the National Electric Power Company, owned by the government of Jordan and Dolphinus Holdings, a new entity formed to import gas to Egypt,” Moody’s said
INTENSE COMPETITION
The ratings agency also said Leviathan faced intense competition from other Israeli gas suppliers, including the 4AMARûlELD ûANOTHERûlELDûINûTHEûeastern Mediterranean in which Delek holds a stake
McClain said that the concentration of Delek’s offering on a single asset and
potential geopolitical problems
in the region, as well as higher leverage, could make some in the market pause
“The growing supply in the region could introduce risk around Leviathan’s uncontracted volumes – around 20% – and maybe even gradually pressure the Egyptian contract
“Leverage is going to look high relative to most traditional exploration and production [companies], but it’s a low decline asset that has minimal capex needs, so it is a lot easier
to understand You can put more leverage on it than a traditional E&P business.”
Delek Drilling has total lNANCIALûDEBTûOFû53BNû QUARTERûNETûPROlTûOFû53M ûWHICHûAREûoften announced in February Some have dangled the carrot of extra payouts if capital
is not eroded too much by the crisis
Indeed, several banks’ capital ratios jumped during the second quarter, despite a rise in impairment charges, including at
BARCLAYS, Credit Suisse and UBS
But UBS CEO Sergio Ermotti summed up the uncertainty on capital distribution
h7EûDONTûRULEûOUTûTHEûPOSSIBILITYûFORûsome share buybacks in the fourth quarter,” Ermotti said “But as we all know, nowadays, AûFEWûMONTHSûAREûLIKEûANûETERNITYû7EûAREûgoing to be in a better position to give you more details in October.”
Steve Slater, Thomas Blott
The ECB also told banks to
“exercise extreme moderation”
with bonuses, especially for material risk takers – sending a warning shot across the industry
Trang 20International Financing Review August 1 2020
18
BARCLAYS CEO JES STALEY, P12
“The underlying growth of capital markets
activity I think is going to continue to be robust”
HSBC creates ESG unit
HSBC has launched an ESG solutions unit to
help global clients in transitioning
businesses and economies to a more
sustainable low-carbon model in the
post-coronavirus world
The unit will form part of the strategic
SOLUTIONSûGROUPûINû(3"#SûCAPITALûlNANCINGû
and investment banking division, and will
combine the bank’s sustainability
capabilities to provide ESG-related advice,
STRATEGIESûANDûlNANCINGûIDEAS
h7EûAIMûTOûBEûTHEûLEADINGûBANKûFORûTHEû
build a future in which economic growth
and sustainability are well-aligned,” said
Daniel Klier, global head of sustainable
lNANCEûATû(3"#
“These changes will allow us to rapidly
grow our role in providing ESG strategies for clients so we can accelerate their ability to contribute to a low-carbon future.”
HSBC is already active in sustainable response bonds that were issued from February to July to mitigate the economic effects of the pandemic, according to the bank
The bank also launched a reporting service in July that allows institutional investors to measure the sustainability credentials of their investments by tracking the ESG ratings of large holdings
The creation of the ESG solutions unit mirrors similar moves at Citigroup and Deutsche Bank as investors’ focus on sustainability continues to attract more capital
ESG SOLUTIONS
HSBC’s ESG solutions unit will be led by Jonathan Drew, who is based in Hong Kong, WORKINGûWITHû&ARNAMû"IDGOLIûINû,ONDONûANDûJulie Bennett in New York
The bank said they will be supported by hundreds of others and the network is expected to expand to meet the growing lNANCINGûNEEDSûOFûCLIENTSûTRANSITIONINGûHSBC’s broader strategic solutions group also includes a team focusing on corporate lNANCEûANDûANOTHERûLOOKINGûATûlNANCIALûinstitutions and capital
The group will be led by Nik Dhanani, WHOûPREVIOUSLYûHEADEDûTHEûGLOBALûlNANCINGûSOLUTIONSûGROUP ûANDûWILLûCOMPRISEûABOUTûûAmericas
Tessa Walsh
Citi sets US$250bn environmental finance target
CITIGROUPûHASûANNOUNCEDûAû53BNû
ENVIRONMENTALûlNANCEûGOALûTOûHELPû
accelerate the transition to a low carbon
sustainable progress strategy as the banking
industry gears up to help “brown”
companies become more sustainable
The new goal will focus on low-carbon
transition, climate risk and sustainable
OPERATIONSûINûTHEûNEXTûlVEûYEARSûANDûWILLû
form part of Citi’s environmental and social
policy framework
h7ITHûOURû53BNûGOAL ûWEûWANTûTOûBEûAû
leading bank in driving the transition to a
low-carbon economy, which we anticipate
will accelerate as businesses of all kinds shift
to a more sustainable future,” said CEO
Michael Corbat
The bank is aiming to use its global
presence to help companies transition,
aided by the rise in investor assets and
interest, in a move that will also help the
bank to reduce its climate change risk
h7EVEûGOTûTHEûFOOTPRINTûTOûHELPûOURû
clients on their transition journey and we’re
doing it at the same pace that investor assets
are ramping up and increasing,” said Phil
Drury, Citi’s EMEA head of banking, capital
markets and advisory
“MORE TO DO”
Citi created a sustainability and corporate
transitions group in May in its global
banking, capital markets and advisory
business unit after identifying ESG as a
priority
)NTERNATIONALûAUDITûANDûADVISORYûlRMû-AZARSûsaid ESG criteria are not yet fully integrated across the banking industry and more banks need to place sustainability in risk management frameworks and measure it more effectively
“A handful of banks are leading the way, with most still having some work to do to fully embed ESG factors in their corporate strategy, governance and risk management frameworks,” said Virginie Mennesson, head OFûREGULATORYûAFFAIRSûATû-AZARS
NEW TARGET
Citi put the new target in place after EXCEEDINGûITSûORIGINALû53BNûGOALûINûITSûlRSTû%3'ûREPORTûINû!PRIL ûMOREûTHANûFOURûYEARSûAHEADûOFûPLANû4HEû53BNûTARGETûISûONûTOPûOFûTHEû53BNûOFûENVIRONMENTALûlNANCEûALREADYûACHIEVED
#ITIûSAIDûITûWILLûUSEûINNOVATIVEûlNANCINGûstructures to help clients achieve positive impact at scale in renewable energy, clean technology, water quality and conservation, sustainable transport, green buildings, ENERGYûEFlCIENCY ûCIRCULARûECONOMY ûANDûsustainable agriculture and land use
“A large part of it will come through capital markets underwriting It’s all our lNANCINGûACTIVITIESûACROSSûTHEûFULLûGAMUTûOFûcapital markets,” Drury said
The bank aims to reduce the climate risk and impact of its client portfolio, initially by measuring the impact of its own portfolios ANDûTHEIRûPOTENTIALûALIGNMENTûWITHûAûûANDû
2 degrees Celsius global warming scenario
Citi will also test the resilience to transition of its lending portfolios and physical risks of climate change, and continue to disclose in line with the Task Force on Climate-Related Financial Disclosures
)TûWASûTHEûlRSTû53ûBANKûTOûSIGNûTHEû5.SûPrinciples for Responsible Banking, and has issued its second benchmark green bonds since the start of the pandemic, and purpose acquisition company
The bank said it will look beyond labelled bond products to underdeveloped areas of green equity and M&A as companies start to target acquisitions to speed transition
h7EûNOWûHAVEûGREENûEQUITYûCONVERSATIONSûwith clients, and we have targeted M&A discussions with CEOs about their transition
to a low carbon capture corporate strategy and structure That M&A advisory is PRESUMABLYûGOINGûTOûLEADûTOûlNANCINGûANDûALLûOTHERûlNANCINGûSOLUTIONSûTHATûTAKEûplace,” Drury said
The bank is also looking to use its LEVERAGEDûlNANCEûFRANCHISEûASûMOREûPRIVATEûEQUITYûlRMSûADOPTû%3'ûAFTERûAûRELATIVELYûslow start as investors continue to call for CHANGEûINûBUYOUTûlNANCING
Tessa Walsh
“We’re doing it at the same pace that investor assets are ramping up and increasing”
Trang 21International Financing Review August 1 2020 19
People
& Markets
DCM surge lifts Deutsche
DEUTSCHE BANK‘s debt capital markets business
outperformed US rivals in the second
YEARûTOûõM
That partially compensated for a
comparatively lacklustre showing in its core
lXEDûINCOMEûANDûCURRENCYûTRADINGûBUSINESS û
WHICHûSAWûAûûRISEûINûREVENUESûTOûõBN
Many competitors, including European
rivals UBS and BNP Paribas, reported a near
doubling of FICC revenues due to volatile
and lively markets (see previous P&M story)
2AMû.AYAK ûHEADûOFûlXEDûINCOME ûSAIDû
the more restrained gains at Deutsche was
partly due to its European focus after a
retreat to its domestic base as a result of CEO
Christian Sewing’s reorganisation a year
ago
“The restructuring has ended up with us
having a more stable revenue base,” said
Nayak “[The relative performance of]
European banks versus US peers in FICC is a function of their business mix.”
Rates was a stand-out product for the bank, recording its best second-quarter result for a decade FX and emerging markets trading was also strong
$EUTSCHEûTOOKûõMûOFûPROVISIONSûINûTHEûsecond quarter, largely against positions in its investment banking book Despite this against a €946m pre-tax loss a year earlier
Deutsche said it is also keeping a lid on costs
“Costs remain a key thing for us Very few lRMSûAREûABLEûTOûFOCUSûONûREVENUEûGROWTHûwhile reducing cost bases These results show we can,” said Mark Fedorcik, head of the investment bank
Some analysts were concerned the bank could see elevated loan provisions next year, however
“There is a risk that losses end up being at the upper-end of the guidance this year and REMAINûELEVATEDûTHROUGHOUTû ûWHEREASû
we expect these to decline at peers,” said Andrew Coombs, analyst at Citigroup
Fedorcik said it was the third consecutive quarter of revenue growth in the investment bank that had “driven our market shares back
to where they were one or two years ago”
Equity capital markets revenues nearly TRIPLEDûTOûõMûnENCOURAGINGûAFTERûTHEûbank ditched its equities trading arm as part
of the restructuring
“In both investment-grade DCM and LEVERAGEDûlNANCEûWEûGAINEDûMARKETûSHAREûINûTHEûlRSTûHALFû7EûALSOûHADûQUITEûSTRONGûgains in ECM,” said Fedorcik
h4HEûRISKSûWEûTAKEûINûLEVERAGEDûlNANCEûAREûCALCULATEDû7EûSAWûSTRONGûSYNDICATIONûOFûbridge loans and lots of sub-investment-grade clients were accessing the market in May and June.” Others had yet to see such STRONGûACTIVITYûINûLEVERAGEDûlNANCE
Christopher Spink
Record quarter for Nomura wholesale
NOMURA moved back into the black during
the April-June quarter following a record
performance in its wholesale division and its
Nomura’s international business, so often
a drag on earnings in the past, posted its best quarter on record with pre-tax income more than doubling to ¥64.2bn
4HEûBANKûWASûPROlTABLEûINûEACHûOFûITSûthree regions outside Japan – Americas, Europe, and Asia and Oceania All three made a loss in the previous quarter
Thomas Blott
StanChart eyes more cost cuts as impairments jump
STANDARD CHARTERED
by a third as it increased impairment
charges more than six-fold in response to
lender warning that income was likely to
remain subdued for the rest of the year
The bank struck a cautious note, warning
that income was likely to be lower during
the second half as low interest rates and less
BUOYANTûCONDITIONSûFORûITSûlNANCIALûMARKETSû
StanChart already walked back a number of
its medium-term targets at the beginning of
this year, and its return on tangible equity came INûATûJUSTûûINûTHEûlRSTûHALF ûDOWNûBPûFROMû
a year ago and well below its previous target of
ûBYûû4HEûBANKûACKNOWLEDGEDûITûWASûgoing to take longer to hit its return target
But StanChart said it had kept a lid on costs ANDûPLANNEDûTOûKEEPûEXPENSESûBELOWû53BNûthis year, excluding the UK bank levy
#HIEFûEXECUTIVEû"ILLû7INTERSûSAIDûTHEûBANKûwas “accelerating some elements of existing projects targeted at creating a leaner and more agile organisation” and was “developing new expense reduction initiatives” to keep costs BELOWû53BNûNEXTûYEAR
This would involve a “very small number OFûREDUNDANCIESv û7INTERSûSAID ûWITHOUTûdisclosing which businesses would be impacted
5NDERLYINGûPROlTûINûITSûCORPORATEûANDûINSTITUTIONALûBANKINGûDIVISIONûFELLûûTOû53BN ûLARGELYûDUEûTOûINCREASEDû
impairments relating to three unconnected EXPOSURESûINûTHEûlRSTûQUARTER
#)"SûOPERATINGûINCOMEûROSEûûTOûUS$3.99bn on the back of the same buoyant trading activity that has lifted the results of its US and European peers
&INANCIALûMARKETSûREVENUESûROSEûûTOû53BNûWITHûOPERATINGûINCOMEûFROMûRATESûMOREûTHANûDOUBLINGûTOû53MûRevenues from foreign exchange and COMMODITIESûWEREûUPûûANDû ûrespectively Revenues from credit and CAPITALûMARKETSûDIPPEDûûANDûCAPITALûSTRUCTURINGûWASûDOWNû
2EVENUESûFROMûCORPORATEûlNANCEûWEREûUPû
ûATû53Mû4RANSACTIONûBANKINGûWASûmore disappointing, with revenues falling
ûTOû53BN ...
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