Slim margins
Carlos Slim is a name that resonates through European equity-linked markets thanks to his fondness for funding through exchangeable bonds in large size. February's bond from his Mexican telecoms company America Movil exchangeable into Dutch peer KPN totalled €2.1bn, sold at a premium to raise €2.2bn, making it the largest placing with European investors of a non-mandatory since the previous AMX/KPN deal in May 2015.
Citigroup, which snapped up the coveted sole global coordinator slot, with Bank of America and Barclays as joint bookrunners were charged with placing the major deal against a volatile backdrop. They endured a bumpy ride that saw pricing come below guidance.
Pre-sounding meant the transaction launched 80% covered, but as share prices fell during execution – with KPN at one stage down more than 10% – already aggressive terms became too punchy. The issue price was set 100bp below guidance, yet the issuer still secured a negative yield on the three-year paper of 1.53% and a 15% exchange premium. Selling the bonds at 104.75 meant AMX collected proceeds of €2.2bn.
Repricing was embarrassing for the leads, yet there was nothing wrong with the execution plan as this was a regular issuer, with an investment-grade rating and a liquid underlying stock. Ultimately the terms were aggressive and the market moved against them. There was enough demand to jam the deal out in the original terms, but leads opted to instead boost the quality of the book with the price cut. It still wasn't cheap, as shown by the participation of 80 accounts when the book for a deal of this significance would normally top 100 orders.
Implied vol of 22% was flat to then three-month realised vol and four points above the 18% level seen across all time horizons ahead of the market sell-off in early 2020. Pricing in early 2021 was typically pre-Covid vol plus two points. Even the 15% premium delivered an exchange price that KPN last saw in mid-2017, and then only briefly.
While the first half of 2021 saw European structured equity issuance at a rate well above average, there was barely any in the second half. The importance of jumbo deals can therefore not be overstated. The market needs big, liquid issues from investment-grade names to complement those from tech and growth companies.
Heavyweight champion Tyson Fury was knocked to the canvas twice in his title bout with Deontay Wilder later in 2021. Yet the record books simply record Fury's win by knockout. The same goes for AMX and the final terms it achieved.
"Ultimately the outcome of that deal raising €2.2bn for AMX at a deep negative yield, substantially better terms than what they got five or six years ago, I think was a phenomenal achievement," said Javier Pollan, head of EMEA equity-linked at Citigroup.
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