Coast-to-coast success
As bond markets continued to thrive for most of 2021, issuers gravitated to banks with the best ideas, the best distribution and the best understanding of their needs. No bond franchise demonstrated these skills better than Citigroup. Citigroup is IFR’s Bond House, Asia Bond House, North America Financial Bond House, Europe Investment-Grade Corporate Bond House and Yankee Bond House of the Year.
Citigroup’s bond bankers like to stress the bank’s global credentials. In 2021, they proved them.
Nothing illustrates Citigroup’s global success better than the IFR Awards it has won alongside Bond House of the Year – Asia Bond House, North America Financial Bond House, Europe Investment-Grade Corporate Bond House and Yankee Bond House.
“We wake up every day around the world in 100 countries. When the most demanding, most sophisticated companies think who they want to hire, they know who to call,” said John McAuley, co-head of North America DCM.
The bond business is ingrained in Citigroup’s DNA. While every bank likes to stress its multi-product, multi-market capabilities, in truth very few can actually provide such a service, certainly not to any meaningful scale.
Citigroup can. The debt capital markets business is a well-oiled machine, working around the clock with the key objective being to “find the lowest cost of capital” for its clients, according to Peter Aherne, the other co-head of North America DCM.
One of Citigroup’s outstanding features is its ability to adapt quickly to market changes, as illustrated by its Asia business. The bank has been shifting its business model in recent years to become more competitive and reach new issuers in smart, focused ways.
It has established a stronger foothold in ESG, high-yield and China, and helped guide more borrowers into the 144A market, which was often the best option for Asian investment-grade issuers in 2021.
The booming issuance in the first quarter slowed and spreads widened due to China Huarong Asset Management’s announcement in March that it would need to restructure its business, before China Evergrande Group’s struggles caused further chaos in high-yield in the second half.
In navigating these changing conditions, Citigroup racked up league table credits of US$32.69bn for Asia-Pacific ex-Japan G3 currency bonds – and a 7.6% market share – to give it the second-place spot.
“We’ve had a great year throughout the region,” said Adrian Khoo, co-head of Asia DCM, loans and acquisition finance. “We’ve had a very strong 2021 … during the very solid conditions of the first half, as well as weathering the volatility of the second half.”
Citigroup started the year strongly, pumping out standout deals such as Alibaba Group’s US$5bn trade, which included a sustainability portion, and Bank of China’s transition and Yulan bonds – Euroclearable offshore bonds issued by onshore Chinese companies through Shanghai Clearing House – in January. The bank was also a lead on the Hong Kong government’s debut green bond sale in February.
As the year progressed and volatility increased, Citigroup held strong, demonstrating its ability to lead trades of every rating from a variety of sectors around the region.
In South Korea, Citigroup worked on KDB Bank’s SEC-registered triple-tranche trade that included a SOFR-linked green bond. The bank worked on the Indonesian sovereign’s US dollar and euro offerings, which included a green sukuk trade and the country’s first euro sustainable development goals bond. It also took Genting Malaysia to the US dollar market for the first time, helping the borrower raise US$1bn.
Citigroup proved its mettle in Singapore when it was the sole global coordinator for Singapore Airlines’ US dollar debut. The borrower raised US$500m from its 3% 5.5-year notes, despite the challenges airlines have faced during the coronavirus pandemic.
The bank advised issuers from difficult sectors to delay deals or look at alternative options when markets became more volatile.
“Sometimes we have to take tough decisions with issuers,” said Benjamin Ng, co-head of Asia DCM, loans and acquisition finance. That included telling some issuers to target shorter tenors or different currencies.
In the past year, a strong presence around the region paid off, as Chinese issuance pulled back. India, for example, had an incredibly strong year – something Citigroup was able to tap into. It led bank capital trades, ESG deals, debut borrowings and repeat transactions from the country, including Hexaware’s unique US$1bn high-yield bridge-to-bond fundraising and rare US dollar Additional Tier 1 bonds for HDFC Bank and Axis Bank.
“This has been a year where we have been hired in every single geography in the region,” said Khoo. “You’re seeing the strength of the Citi platform against the regional diversified story.”
Going deep
The durability of Citigroup’s platform was evident in the US too, especially in its coverage of FIG and Yankee deals.
Record low funding costs drove a strong year for US dollar financial bond supply in 2021 as banks followed extensive fundraising efforts in 2020 to tackle more complex deals deeper in the capital structure. Citigroup’s global approach paid dividends as it helped a vast array of clients access the deep US dollar market for attractively low cost and strategic financing.
While the broader investment-grade bond market saw overall volumes shrink after the corporate borrowing frenzy of 2020, financial supply remained strong in 2021 as banks locked in historic low rates, termed out debt and used the bond market to mitigate Libor risks.
Self-led issuance from the large US banks was exceptionally strong in 2021. But Citigroup’s financial bond franchise stood out for its leading role, bringing a diverse set of borrowers to the market to lock in a broad range of strategic transactions.
“Execution quality is hugely important for a sophisticated issuer base, but given the lack of credit extension, when financial clients award bookrunner roles it is mostly driven by the advice we provide,” said Temmy Lizarzabal, co-head of North America financial institutions DCM.
“Clients have clearly voted with their wallet when it comes to some of the more challenging and influential transactions that they executed this year in North America,” he said.
Citigroup brought a raft of borrowers to the market to issue subordinated capital in 2021 as attractive Treasury yields and all-time low credit spreads created an irresistible environment to borrow.
“Whether you look at AT1 capital for banks or hybrid capital for other financial institutions and corporates, it was clear that the market for securities down the capital structure was as good as we have seen in our careers,” said Lizarzabal.
Citigroup was trusted by a number of highly sophisticated borrowers to handle the issuance of preferred securities in 2021. With supportive market conditions in tow, Citigroup printed several at record low levels.
In August, American Express trusted the bank as billing and delivering agent and joint bookrunner on its first preferred note offering since 2015, a deal that refinanced outstanding perpetual preferred securities that floated over Libor.
The bonds priced at 3.55%, at the time the lowest ever US bank preferred coupon.
Just weeks later Citigroup printed a US$1.5bn perpetual non-call five preferred note for PNC at a yield of 3.4%, breaking the record low set by Amex.
In addition, Citigroup placed a debut US$400m preferred note for aircraft leasing company Aircastle in June, upsizing the notes from US$300m and printing them at 5.25% with order books over four times subscribed.
“We’ve been a leader in this space for the better part of two decades and it reflects the resource commitment that we’ve made and the coverage we provide,” said Aherne. “We are attuned to the structural innovations and nuances around distribution of a product like this, particularly at such aggressive levels as we did for both PNC and American Express.”
Round the world
Citigroup’s global reach helped it land joint bookrunner roles on a number of US dollar Tier 2 mandates too as supply surged in that corner of the credit market.
In March, it was joint bookrunner on a US$2.75bn 10-year and 20-year bullet fixed Tier 2 note from Commonwealth Bank of Australia, the largest Australian Tier 2 trade since Aussie regulators introduced a TLAC framework. The 10-year priced at 153bp over BBSW, the tightest spread of any tenor over the benchmark of any post-TLAC Australian bank Tier 2 offering in US dollars.
Citigroup also acted as joint bookrunner on a US$600m “tax deductible” AT1 from Bank of Nova Scotia in July that was the first of its kind among Canadian borrowers.
Citigroup’s prevalence on US dollar mandates from banks both in the US and globally is testament to the firm’s financial bond franchise, said Aherne.
“We have an internal mantra around being the bank for banks,” he said. “Our innovation and distribution in a highly competitive market backdrop is a cornerstone of the US investment-grade business.”
It’s these qualities that compel issuers to hire Citigroup whether for repeat business or for first-time deals. Many of those issuers are crossing borders, such as European clients into the US market.
Yankee doddle
The Yankee business is one of the most important to Citigroup and it’s another in which it excels. Not only are clients often leaders in their sectors but they also often issue in size, to take advantage of the US dollar market’s deep pool of liquidity.
In March, for example, Siemens raised US$10bn through seven tranches to fund its acquisition of Varian Medical Systems. It was Siemens' first deal in the US dollar market since 2017.
The deal had tranches ranging from two to 20 years, the latter a less common tenor. However, issuers found rates attractive at the 20-year part of the curve where such securities were pricing off the corresponding 20-year Treasury as opposed to off the 30-year rate as companies had historically done.
Another memorable deal came in September when Nestle raised US$5bn across six tranches. Despite pricing on the busiest day ever seen in the US dollar market, in terms of number of deals, the order books grew steadily to peak at over US$15bn.
At the time of issuance, Nestle’s three-year, seven-year, 10-year, 20-year and 30-year tranches all managed to achieve the lowest 144A credit spreads for each tenor since the financial crisis.
Target met
Sometimes Citigroup had to take a client across multiple markets, with the US dollar side helping to attain tighter pricing in the other currencies. In March, London Stock Exchange Group needed to raise US$7bn-equivalent across US dollar, euro and sterling markets to finance the bridge loan for its US$27bn acquisition of data and analytics company Refinitiv, IFR’s parent.
Although it had never issued in the US dollar market before, LSEG got a peak book of about US$22bn to enable it to raise US$4.5bn through four tranches. It followed up with offerings in the euro and sterling markets in order to meet its target.
ESG leadership
ESG became a much bigger theme in the US market last year and Citigroup played its part by acting as a bookrunner on Enel’s US$4bn sustainability-linked bond, at the time the biggest such deal in the format.
“ESG is an area where we’ve shown tremendous leadership,” said Aherne.
It’s a standout area in Citigroup's European corporate business too. The bank has played a key role in broadening the universe of borrowers that have incorporated ESG products into their debt strategies. The bank worked on pharmaceutical company Eli Lilly’s debut sustainability bond, for example, as well as sustainability-linked issuance for A2A and Tesco.
Tesco made its debut in the SLB format in January with a €750m July 2029 offering that got a book of more than €5.75bn. It then turned to its home market in October with a £400m seven-year note. Citigroup was a lead on both deals.
As head of EMEA DCM William Weaver said, the bank’s ability to win such mandates is not because of the size of its balance sheet but the value-add it is able to provide to clients.
“It’s been a remarkable effort from our team,” he said.
Aside from ESG, one theme that dominated the European corporate market in 2021 was M&A-related financing. Citigroup was able to help deliver over €39bn of such bonds in 2021.
“There was a very substantial pickup in the volume of M&A financing, particularly against the backdrop of what was seen in 2020, which was much more defensive financing strategies,” said Tomas Lundquist, head of European corporate DCM.
Acquisition-linked bond issuance rose more than 130% in 2021 relative to the year before.
There were a number of notable transactions that Citigroup helped to deliver, including a two-part financing for laboratory equipment and services company Thermo Fisher, which needed to fund its acquisition of drug-developer PPD.
Citigroup helped Thermo Fisher raise €8.05bn in the euro market, split into two portions.
A €5.25bn longer-dated segment, which marked the largest euro IG corporate deal of 2021 and was spread across nine, 12, 20 and 30-year tenors, was executed in October. A month later, Citigroup worked with the issuer again, helping it return to euros to raise an additional €2.8bn of short-dated paper, over fixed and floating-rate two-year notes and a four year. The FRN marked the first syndicated corporate euro floater placed in over a year.
“It allowed the issuer to de-risk ahead of the big rates volatility while equally giving them the chance to make sure they had full confidence in being able to close the large quantum of debt in the short end as well,” said Janusz Nelson, head of European corporate debt syndicate.
That first Citigroup Fisher offering tied in with another of the year’s themes: duration. Citigroup understood the importance of advising its clients to issue at as long as possible given how low rates were and how likely they were to eventually rise again.
Another example of the duration trade was Eli Lilly’s €2.1bn-equivalent financing exercise, which incorporated both 30 and 40-year conventional tranches, to go alongside a 12-year sustainability bond, allowing the US pharmaceutical to lock in ultra-low coupons and refinance more expensive US dollar debt.
Under normal circumstances, the 30-year note would have drawn the most attention given the limited corporate supply in the tenor. There had just been three in 2021, prior to Eli Lilly.
However, the 40-year bond marked the first euro corporate benchmark issued in that maturity since 2007 and the overall deal was the first instance ever of a corporate bringing euro 30 and 40-year tranches at the same time.
Corporate hybrid issuance soared in 2021, and Citigroup played a key role, delivering subordinated capital for clients to help them finance acquisitions, optimise their balance sheets, support their ratings and fund ESG-related capex.
Citigroup brought a number of debut issuers to the format, including Atrium, British American Tobacco and Wintershall Dea. The hybrid that Citigroup worked on for Heimstaden AB marked the first euro hybrid from an issuer with fully sub-IG senior ratings and the first from a holding company.
These trades are the most sought-after but not easy to do. They require a lot of time, planning and original thought. A badly executed hybrid is damaging for a client as it’s the highest cost of funding for an issuer outside of equity.
“We put a lot of emphasis on the intellectual expertise behind the product before we get to the distribution,” said Simon Francis, head of EMEA debt financing.
Does Citigroup have weaknesses? There will always be gripes from rivals and acknowledgement internally that there’s room for improvement. But very few working elsewhere wouldn’t love to have the opportunity to be at a bank so deeply rooted in the world’s debt capital markets. As Francis said: “This is an amazing bond business.”
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