6 International Financing Review April 4 2020Top news
Centurion Israel hits the right notes
Emerging Markets Sovereign issues debut 100-year bond as part of three-part dealBY SUDIP ROYISRAEL joined the 100-year club as
central banks’ support of the
GLOBALûlNANCIALûSYSTEMû
encourages issuers to extend
their maturity curves as far as
possible.
While century bonds are
commonly associated with bull
markets, current conditions are
very different. But with Israel
grappling with the effects of the
coronavirus and investors
seeking duration, it made sense
for the Middle East sovereign to
term out its debt stock.
“The bid for duration has been
strong in both rates and credit in
the past couple of weeks,” said a
banker at one of the leads.
In the US high-grade market,
for example, some borrowers
have priced their longer-dated
bonds inside their shorter ones
on a spread basis.
It was still a surprise, though,
to see a 100-year bond when
Israel (A1/AA–/A+) announcedthe deal on Tuesday, alongside
10 and 30-year tranches. But
bankers said the sovereign was
one of the best candidates for
such a trade.
“It’s probably a unique
name for this market. It’s well
rated, not an oil economy andis a member of the OECD,”
said a banker away from the
deal.
Initially, Israel was targeting a
US$4bn transaction but a
combined order book of
US$25bn enabled it to raise
US$5bn.The deal meant Israel became
only the sixth sovereign to issue
a century bond.
While the tenor has become a
little tainted by fellow 100-year
club member Argentina’s
travails, Israel proved that for
top-rated issuers investors
remain keen to buy bonds that,
though more vulnerable to
interest rate risk than shorter-
dated debt, pay higher rates.
“The duration, headline
coupons and, to some degree,
convexity of these issues is
attractive to buyers, with
extended debt life being the
BENElTûFORûISSUERS vûSAIDûAûSECONDû
lead banker.RATINGS SUPPORT
The convexity-adjusted
additional duration over the 30-
year bond was about six years
but what mattered to Israel was
to be able to term out the
average life of its portfolio –
something that will support its
ratings.Oracle prices splashy US$20bn deal
Bonds Deal funds share buybacks, but opportunistic M&A transactions could followBY WILLIAM HOFFMANIT company ORACLE on Monday
priced the largest US high-grade
corporate bond deal of year so
far, taking a surprising amount
for a transaction that is not
LINKEDûTOûSPECIlCû-!
The US$20bn six-part bond is
expected to fund general
corporate purposes, share
buybacks and could be used
for future M&A, even though
no deal is announced at this
time.
It was the largest deal on a day
in which 12 borrowers raised
US$37.175bn in the US high-
grade bond primary for the
largest volume day of the year,
according to IFR data.
“It’s a war chest deal,” one
syndicate banker away from the
trade said.“US$20bn is a huge number,
bigger than I would have
expected.”The deal received a lot of
investor demand, but came
across to several market
participants as what one
described as “insensitive”.
Some companies need access
to the market just to keep thelights on and maintain payroll,
but Oracle is taking more size
than it needs out of the market to
fund a US$15bn share repurchase
AUTHORISATION ûONEûlXED
INCOMEû
broker-dealer analyst said.
“To use the proceeds for share
repurchases seems opportunistic
and out of tune,” the analyst
said.
An investor agreed.
“Companies don’t need to be
focusing on their stock; they just
need to be doing the right
things: keeping a strong balance
sheet, keeping liquidity and
shoring up liquidity when they
need it to get them through this
time,” he said.
Some market participants did
admit though that if the funds
are used for M&A somewhere
down the line it could be looked
at as a shrewd offensive move ina moment of dislocation in the
market.
“In the tech space you may
have some smaller companies
that were ready to IPO and if you
have some cash in the
barrelhead, you’re in a better
position to execute,” said Matt
Daly, head of corporate credit
research at Conning.
When the deal was
announced and initial price
thoughts released, the software
ANDûCOMPUTINGûCOMPANYûmAGGEDû
it would be downgraded by one
notch by Fitch to A– with a
negative outlook and by two
notches by Moody’s to A3 with a
stable outlook. It duly was.
S&P maintains an A+ rating,
but is expected to downgrade
later this year if the company
follows through with share
repurchase programme.2.2.3.3.3.3.3.Jan Feb Mar Apr
2020NOT BACK TO NORMAL BUT GOOD ENOUGH
THE YIELD ON ISRAEL'S 3.375%
JANUARY 2050sSource: Refinitiv%“Companies don’t need
to be focusing on their
stock; they just need
to be doing the right
things: keeping a strong
balance sheet, keeping
liquidity and shoring up
liquidity when they need
it to get them through
this time”4 IFR Top news 2327 .p 2 - 12 .indd 6 03 / 04 / 2020 19 : 29 : 29