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The French bank has once again shown it is a force to be reckoned with in DCM, with notable successes in investment grade, hybrid and sustainable finance issuances. Edward Russell-Walling reports.

Volumes in 2021 may not have reached the extraordinary heights of 2020, but it was still a busy year in the debt capital markets (DCM) and an exceptional year for BNP Paribas, which says it was a bookrunner in one out of every three European investment-grade bond issues.

“Investment-grade issuance in Europe, the Middle East and Africa (EMEA) will be down 20% in 2021,” says Giulio Baratta, head of corporate DCM EMEA at BNP Paribas. Rather than having negative connotations, he notes, this reflects the record torrent of issuance the year before.

“For three quarters of the year, it was a lot about safety net and cost saving,” Mr Baratta says. “Then, in the fourth quarter, mergers and acquisitions (M&A) resurfaced, with many cash-funded acquisitions in the pipeline. People were more confident about the medium term and starting to spend money.”

As December approached — traditionally a quiet time in primary markets — BNP Paribas had a comfortable lead over its competitors in the euro investment-grade corporate bookrunning league. It accounted for 8.3% of deal value against 6% for the next in line, JPMorgan, according to IFR.

The French bank says it led the highest number of debut transactions and the biggest hybrid deals, while continuing to be a pioneer in sustainable finance. “We were also at the forefront of growth in corporate real estate unsecured issuance,” Mr Baratta says.

Growth from property corporates was particularly noticeable, according to Thibault Hescot, fixed income corporate syndicate and head of equity-linked syndicate at BNP Paribas. “In 2020, real estate deals accounted for 8– 9% of the market,” Mr Hescot says. “In 2021, that grew to 19%, including some jumbo transactions.”

Hot property

One of the biggest issuers was BBB-rated Heimstaden Bostad, a Sweden-based residential property investor and manager, which issued 11 bonds in the course of the year. BNP Paribas was an active bookrunner on seven of them.

In October, Heimstaden priced €2.75bn of senior unsecured notes in three tranches and €600m of hybrid notes. The senior tranches were a three-year (€1.25bn), a 6.5-year and a 10-year (€750m each).

With guidance set at mid-swaps plus 60 basis points (bps), 110bps and 145bps respectively, the total book grew to more than €6bn. At the same time, a perpetual non-call 5.25 hybrid was announced with guidance of 3.625% to 3.75%, drawing more than €950m of orders.

After an intraday softening of the market, the senior notes were finally priced at the same level as guidance, with the re-offer yield on the hybrid set at 3.75%. The deal logged in as the fourth-largest euro property transaction since 2010 and the second-largest euro deal of all time from the Nordics.

The proceeds will go towards the €9.1bn purchase of nearly 29,000 homes in Germany, Sweden and Denmark from Sweden’s Akelius. This will create the second-largest property company in Europe.

Another multi-tranche property deal came from BBB-rated Blackstone Property Partners Europe, which invests in high-quality real estate. One-third of its €10bn portfolio is in Germany, with the balance spread across Europe and the UK.

In October, Blackstone issued €2.5bn of unsecured notes. It launched a two-year, five-year and long (more than) eight-year (inaugural green) euro transaction, together with four-year and seven-year sterling tranches. BNP Paribas was a joint bookrunner and co-green structuring agent.

Initial price thoughts were mid-swaps plus 70–75bps, 120–125bps and 175bps area and mid-gilts plus 150bps area and 200bps area, respectively. Combined orders of more than €3.5bn and £2bn were received. Sizing and final pricing were €500m with a 55bps spread on the two-year euro slice, €600m 110bps on the five-year and €500m 150bps on the green long eight-year.

The sterling tranches were fixed at £350m with a 140bps spread for the four-year and £450m with 180bps for the seven-year. Proceeds were destined for general corporate purposes and to refinance a portfolio of eligible green investments.

Sustainability focus

If DCM had a respectable year, sustainable bonds had a spectacular run. “In 2021, sustainable issuance grew by more than 60%,” says Agnes Gourc, head of the bank’s sustainable capital markets team. “As well as being number one in investment-grade corporate issuance, BNP Paribas was also number one in EMEA sustainable bonds.”

There is a nice correlation here, Ms Gourc believes. “While we offer sustainable products, as an institution we keep reinforcing our own sustainability policies while we go for net-zero [emissions],” she says.

Among the year’s more notable sustainability-linked bonds (SLBs) was an inaugural €750m deal from UK retailer Tesco, with BNP Paribas as a joint bookrunner and one of two sustainability structuring advisers. It was the first SLB from a UK issuer and the first from the retail sector.

It attracted initial orders of more than €5.75bn. That was enough to prompt an aggressive tightening from thoughts of swaps plus 110–115bps to a final spread of 75bps on a 0.375% coupon.

The largest SLB issuance ever was a $5bn equivalent deal from the Israel-based ‘fallen angel’ pharmaceuticals manufacturer Teva, with BNP Paribas as joint bookrunner and joint sustainability structuring agent.

The transaction launched with long five- and a long eight-year euro tranches together with long five- and long seven-year US dollar tranches. Initial price thoughts were, respectively, in the low 4%s, high 4%s, very high 4%s and US dollar long five plus 37.5bps. The order book reached $14bn equivalent.

The deal was fixed, in the same order, at €1.1bn paying 3.75%, €1.5bn at 4.375%, $1bn at 4.75% and $1bn at 5.125%. The unsecured notes will be linked to targets including access to medicines in low- and middle-income countries and reducing greenhouse gases. “This was the first pharma transaction to link the performance of a bond to environmental and social objectives,” Mr Baratta says.

The first SLB from the oil and gas sector was issued by Italian oil major Eni. This was a €1bn seven-year deal, paying 0.375% with a 50bps spread. BNP Paribas was an active bookrunner.

“All the European oil majors are moving the needle with what they are doing on sustainability,” Ms Gourc observes. “That will allow other sectors to come to market with SLBs. Next year we expect to see issues from the metals, mining and cement sectors, as well as more oil and gas.”

UK property developer Hammerson issued the first SLB in the real estate sector with an upsized €700m six-year issue. Netherlands-based KPN brought the first SLB from a European telco, an upsized 12-year €700m. BNP Paribas acted on both deals.

The most active SLB issuer of all was Italian energy utility Enel, which issued a cumulative €9bn in 2021. BNP Paribas was active on all issues and advised on the company’s sustainability framework.

There were plenty of other highlights. One was when US pharma Eli Lilly became the first issuer to issue 30- and 40-year papers simultaneously, raising €1.8bn across those two maturities and over 12 years. While becoming the first US company ever to issue a 40-year euro bond, it simultaneously sold a £250m 22-year bond.

Vonovia, a private German residential property business with a €56bn portfolio, achieved a super-low coupon on its €500m 20-year senior unsecured note issue. At 1%, this was the lowest-ever coupon for a BBB-rated corporate in a maturity of 20 years or longer.

The company issued early in 2021. As the year-end drew closer, conditions became choppier. “The last quarter of 2021 became increasingly volatile, with all the talk of central bank tightening,” Mr Hescot says. “What was striking, especially in November, was the capacity of some issuers to navigate that and still issue landmark transactions.”

Next year should see supply and primary activity in the corporate market back in growth mode, Mr Baratta believes. “That’s because we will see M&A growing and cash being spent. Business plans are being reset and capex programmes restarted. As spare cash on balance sheets is deployed, that will trigger funding.”

In sustainable DCM, growth should match this year’s 60% or more, at the very minimum, Ms Gourc reckons. “In EMEA it could even be above that,” she concludes. 

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