Deutsche Bank team

The team, which has performed well despite the backdrop, puts its success down to having difficult conversations with clients about the realities of the current markets. Edward Russell-Walling reports.

It has been a curious year in Europe’s debt capital markets (DCM), with the busiest August for some time for financial institutions group (FIG) issuers, despite muted corporate issuance. Sovereign issuance, expected to wane in the post-pandemic era, is now likely to be boosted by the energy crisis. The DCM team at Deutsche Bank is having a good run and believes that continuing uncertainties can play to its strengths.

“We tend to outperform in poor markets because we tell people what they need to hear, not what they want to hear,” says Ade Ademakinwa, Deutsche Bank’s head of DCM syndicate for Europe, the Middle East and Africa (EMEA). “Our clients trust us.”

In the year to early September, Deutsche Bank was ranked first in corporate issuance in euros, and third in total EMEA issuance after BNP Paribas and JPMorgan. It was also running third in FIG issuance, after BNP Paribas and HSBC, and third in sovereign bonds.

Busy summer

Mr Ademakinwa notes that financial institutions issued more bonds this August than in any other August since the global financial crisis. This shows that “banks tend to fund when they think things are going to get worse,” he observes.

Deutsche Bank has been active in all types of FIG issuance, including covered bonds, insurance capital, and environment, social and governance (ESG) bonds. “Our biggest benefit is the breadth of our business,” Mr Ademakinwa believes. “We can issue in different currencies and we can pivot to what the client needs, not what is easy.”

Towards the end of August, Deutsche Bank was green structuring advisor and joint lead manager on Italian bank Intesa Sanpaolo’s €1bn five-year green senior non-preferred (SNP) bond. This was the first-ever green SNP by an Italian bank.

The bond is aligned with the International Capital Market Association’s green, social and sustainability bond principles, and the proceeds will be used to finance eligible projects including renewable energy, clean transportation and green buildings.

The five-year deal was announced in benchmark size with initial price thoughts of mid swaps (MS) plus 270–275 basis points (bps). This offered a premium of around 50bps to fair value, which the leads felt was key to building traction in a busy primary market — national champion issuers from the UK, Germany and France were tapping the market across the capital structure that day.

As books grew, guidance of MS+250–255bps was released, the bond was priced at MS+250bps when they had passed the €2bn mark. There was strong demand from fund managers, who took 74% of the deal, with 15% going to banks, and 10% to insurers and pension funds. The geographical distribution was almost entirely European, with Italy taking the largest share, at 24%.

The reoffer yield was 4.75%. Apart from the price, investors were attracted by the bond’s green flavour and the fact that they were getting in ahead of Italy’s September elections, whose outcome was uncertain.

The following day, Deutsche Bank was joint lead manager on a €1.25bn 16-year non-call 6 Tier 2 issue for German insurer Allianz. Books opened with price thoughts in the MS+245bps area, representing an initial concession of around 55bps. With books in excess of €1.7bn, the spread was set at MS+230bps, translating to a reoffer yield of 4.597% up to the first reset date. At the same time, Allianz called for redemption of its €1.5bn 5.625% Tier 2 notes issued in 2012. Most of the allocation went to real money accounts, mainly in Europe, with the largest share to France (31%).

“The biggest problem for FIG issuers is when interest rates return to normality,” Mr Ademakinwa says. “How do you call capital securities if you must then pay hugely to replace them?”

Quieter for corporates

If it has been all go in FIG, it has been less so for corporate issuance. “Corporates have been relatively quiet over the summer,” says Mark Lewellen, Deutsche Bank’s head of DCM origination for EMEA. “But they are waking up. They have taken note of FIG activity and the direction of pricing and, while the pipeline is manageable at the moment, I think the market will pick up.”

Issuers are having to pay somewhat more than they have been accustomed to. “Low BBB corporates could issue intermediate debt below 1%,” Mr Lewellen says. “Now it’s a high 3% or even 4%.”

He notes that corporate requirements are more nuanced than FIG’s and they do not4 necessarily have the same immediate liquidity needs. But the team has been working to prepare clients for a different environment.

“We have spent the past four months educating treasury teams, getting them to use a crystal ball,” says Helene Jolly, Deutsche Bank’s head of investment grade corporate DCM EMEA. “What is the rates environment going to look like? They have got used to low yields. They need to think about the future.”

they are concerned with what inflation will look like and how corporates will pass it on to their customers

Helene Jolly

Ms Jolly adds that what keeps investors awake at night has already changed. “They moved from discussions about what the European Central Bank was going to do next, to the war in Ukraine and Russian exposure,” she says. “But that went away quite quickly, and now they are concerned with what inflation will look like and how corporates will pass it on to their customers.”

Not all corporates are sitting on their hands. At the end of August, technology giant Siemens identified a supportive issuance window and came to market with a €3bn multi-tranche deal. There were four tranches ­— 2.5 years, five years, eight years and 11 years, with initial price thoughts ranging from spreads of 40–45bps at the short end and 80–85bps at the long end.

Demand, driven by German and French investors, was strong, thanks to Siemens’s standing in the market. Books peaked at €12.5bn, with a skew to the 2.5-year and the 11-year, and the final sizes and spreads were set at €1bn and 13bps, €500m and 25bps, €500m and 45bps, and €1bn and 55bps, respectively. The coupons were 2.25%, 2.5%, 3.75% and 3%.

Mr Ademakinwa notes that the only way for investors to have made money this year was to sell everything in the first quarter and, while they do have cash, they are understandably nervous about deploying it. The Siemens deal, the second-biggest of the year and the largest in the investment grade market for three months, underlined investors’ interest in large, liquid transactions by strongly-rated, defensive names.

Early in September, the bank was a bookrunner on a dual-currency €2bn equivalent green bond for Danish energy company Ørsted. Tranches were a nine-year euro and a 12- and a 20-year sterling, with price thoughts of 110bps area, 195bps and 200bps, respectively.

Ørsted (previously known as Dong) is the world’s largest offshore windfarm developer, making it a natural choice for investors in the present climate. After attracting more than €3.8bn and £2.45bn (skewed to the 20-year), the tranches were sized at €900m, £375m and £575m, with spreads of 75bps, 180bps and 185bps. Reoffer yields were 3.253%, 5.155% and 5.4%.

SSA issuance dips

Sovereign, supranational and agency (SSA) issuance has also fallen this year, after peaking during the Covid-19 epidemic. “We have expected less SSA issuance because Covid is behind us, and part of the financing has shifted from [member] governments to the EU,” says Katrin Wehle, a managing director in Deutsche Bank’s SSA DCM origination unit. “But now they need to pay more to support their people in the energy crisis. So, Finland, France and Italy have all done huge deals recently.”

In early September, the bank was a joint lead on Italy’s second green bond, a €6bn Green BTP 4% maturing in 2035. There was strong demand from the outset and the books closed with orders of more than €40bn.

Almost simultaneously, Deutsche Bank was a joint lead manager on France’s 2.5% 20-year OAT offering. Spread guidance was 8bps area over a comparable issue, finally tightened to 7bps. With orderbooks of more than €32.5bn, the size was set at €5bn.

“France did its best deal in years,” says Ms Wehle. “It was a quality book for one of the most liquid names.” Demand was further fuelled by the fact that investors had not seen long-end supply in large size since June, she adds.


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