IFR 03.7.2020

CONlRMATIONûFROMû#OMMERZBANKûTHATûTHEû

market was very open,” said a syndicate

banker at one of the leads, “but it requires

higher new issue premiums than we had

seen in the weeks before the outbreak of the

coronavirus in Europe.”

Bankers said Luminor paid a new issue

premium of 5bp–7bp based on Slovakian

covered bonds, which trade in the mid-to-

high teens.

The lead banker said the deal could have

been priced tighter but said it was a priority

of the issuer to give investors “a good hope”

of secondary market performance.

Although the deal priced with a negative

yield of minus 0.179%, the 25bp level

ensured strong demand, as relatively few

covered bond issuers would pay such a

SPREADûINûTHEûlVE

YEARûPARTûOFûTHEûCURVE

Luminor was created in 2017 from the

merger of the Baltic units of Nordea and

DNB, and is registered in Estonia with

branches in Latvia and Lithuania. It

ultimately aims to issue pan-Baltic covered

bonds.

4HEûMINISTRIESûOFûlNANCEûOFû%STONIAû

Latvia and Lithuania are working to

establish a Baltic covered bond market,

which will allow banks to issue covered

bonds backed by assets pooled from across

the three countries.

%STONIAûWASûTHEûlRSTûOFûTHEûTHREEûTOûGETûITSû

covered bond law over the line. Latvia and

Lithuania are still working on their

frameworks.

,UMINORSûlRSTûDEALûWASûBACKEDûPURELYûBYû

Estonian mortgage loans, but the bank has

said it will potentially add Latvian and

Lithuanian mortgages to its cover pool later

this year.

The ECB placed an order of around 40% of

Luminor’s deal, and bankers said that due to

its support Estonian covered bonds could in

time trade tighter than Slovakian

comparables, which are not eligible for the

ECB’s covered bond purchase programme.

MIDDLE EAST

LEBANON

DECISION DAY FOR SOVEREIGN

Just days ahead of a US$1.2bn Eurobond

comes due it remains unclear whether

LEBANON, which has never defaulted on

international debts, will make the

repayment.

The bond matures on March 9 though the

sovereign may make use of a seven-day

grace period before making any payment.

The government will meet on Saturday to

decide what to do, said information minister

Manal Abdel Samad after a cabinet meeting

on Thursday.

Some politicians have said the

government should use the money to

ADDRESSûTHEûlNANCIALûCRISISûINûTHEûCOUNTRYû

rather than pay international investors.

The bonds are bid at 58, according to

2ElNITIVû4HATûISûAûRISEûOFûEIGHTûCENTSûOVERû

the last week. Although that quote is based

on little turnover, the price still indicates

that investors are doubtful that a repayment

will be made.

,EBANONûISûWIDELYûEXPECTEDûTOûRESTRUCTUREû

its foreign currency debt.

“It is not a question of if but when a

restructuring needs to take place,” said one

lNANCIALûADVISERûSPECIALISINGûINûSOVEREIGNû

debt restructuring.

The status of the March 9 bond is

complicated by the fact that Ashmore

potentially holds a blocking stake in the

security. The fund manager has

accumulated more than 25% of the US$2.5bn

of sovereign debt maturing in 2020,

including the March 9 note.

That would be enough for the fund to

block any proposals put to bondholders. If

Lebanon then chose simply to default,

Ashmore, and other holders of the bond,

could litigate to be repaid in full.

Ashmore has declined to comment on its

stance in Lebanon.

4HEREûAREûALSOûCONmICTINGûREPORTSûABOUTû

whether Lebanon will undertake a debt

swap to protect its banks, which are the

biggest holders of its debt, from a punitive

haircut.

4HATûWOULDûSEEûTHEûBANKSûAGREEûTOûEXTENDû

the terms of bonds, possibly by as much as

lVEûYEARSûANDûPOTENTIALLYûCHANGEûTHEû

coupons on the notes but leave the principal

untouched.

That would ease problems for the banks,

who would have to inject capital if their

assets were written down.

Lebanon’s new government under prime

minister Hassan Diab has consulted the

International Monetary Fund about

technical measures but has not requested

lNANCIALûASSISTANCEû)TûISûESTIMATEDûAûPACKAGEû

of up to US$9bn might be required from the

IMF or other donors.

Hezbollah, which is backing the

government, has spoken out against the

involvement of the IMF.

“Our position is against this type of

programme and not against the fund as an

organisation,” said Hezbollah MP Hassan

Fadlallah.

“The position is not towards the fund as

ANûINTERNATIONALûlNANCIALûINSTITUTIONûBUTûONû

the terms offered to Lebanon, because they

will lead to a popular revolution.”

Lebanon has appointed LAZARD and law

lRMûCLEARY GOTTLIEB to advise it on any

possible negotiations with creditors. The

central bank could also be considering

appointing advisers, according to the

lNANCIALûADVISER

AMERICAS

ARGENTINA

BOOM IN LOCAL CORPORATE BOND

ISSUANCE

Borrowers from ARGENTINA may be shut out

of the international capital markets ahead of

a multi-billion dollar sovereign debt

restructuring, but local corporate bond

issuance is booming.

Abundant peso liquidity thanks to capital

controls have local investors seeking ways to

put their money to work and corporate

credit seems like the safest bet.

“Capital controls work as a trap for pesos

so there are opportunities for corporates to

get good rates from local markets,” said

Ezequiel Zambaglione, head of strategy at

LOCALûCAPITALûMARKETSûlRMû"ALANZû

Over the last month, a string of

companies - some of them already known to

international investors - have either

announced or printed deals locally in pesos

and US dollars.

Private banking accounts are largely

buying the dollar bonds, while institutional

funds are absorbing peso issuance, said

Zambaglione.

Large US real-money accounts holding

peso-denominated government bonds are

also anchoring some of these trades as they

look for places to park their money.

,ASTûWEEKûOILûlRMûYPF announced a local

BONDûDEALûASûDIDûAGRIBUSINESSûlRMûMSU,

biscuit and sweet manufacturer ARCOR, and

energy company COMPANIA GENERAL DE

COMBUSTIBLES (CGC).

Other energy credits such as VISTA OIL, PAN

AMERICAN ENERGY and TECPETROL have also

RAISEDûFUNDINGûLOCALLYûWHILEûTHEûlNANCIALû

arms of JOHN DEERE, TOYOTA MOTOR and

VOLKSWAGEN have also announced deals.

“Probably we’ll see a larger number of

small issuances during the year, as the

companies will take the opportunity of

collecting cheap peso liquidity from local

markets,” said Zambaglione.

Some of them have been able to lock in

attractive rates. Vista Oil, a special purpose

acquisition company started by former YPF

CEO Miguel Galuccio, issued a US$73m 2024

bond in February at a rate of 3.50%.

International Financing Review March 7 2020 61

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