Ton up
In a tough year for borrowers from emerging EMEA, one new issue stood out.
Saudi Arabia’s Public Investment Fund had been expected to make its debut in the international bond markets for some time. And when it finally emerged with its transaction in October, it didn’t disappoint.
PIF, the transition vehicle for the Saudi economy to move beyond oil, raised US$3bn through three green bonds but it was one tranche in particular that got everyone talking. Alongside five and 10-year notes, the issuer included a statement-making century bond.
PIF’s intention from the outset was to create a benchmark curve, though originally it explored the idea of a more conventional 30-year tenor. But there were various challenges, including diminishing interest from one key buyer base for 30-year bonds – Taiwanese life insurers, which had been stung by rates volatility.
As market conditions began to improve, PIF, in discussion with its banks, considered offbeat tenors, such as 40 and 50-year. But neither would have the impact of a 100-year tenor; it was a statement from PIF and a demonstration of its commitment to Saudi Arabia’s transition story.
More than 230 different investors put in orders for the tranche, almost all from outside the MENA region, with demand reaching more than US$3.2bn at launch. PIF, rated A1 by Moody’s and A by Fitch, raised US$500m through the 100-year note.
It also sold a US$1.25bn five-year tranche and a US$1.25bn 10-year note. Combined orders for those two tranches at launch reached nearly US$19bn. The scale of demand meant that despite pricing being tightened on all three tranches, the bonds have performed well in secondary.
The deal was not without controversy. PIF was funded by proceeds from Saudi Aramco’s 2019 IPO and by a gift of a 4% stake in the state-owned oil company. Its decision to issue green bonds was criticised by some, as were its ESG credentials in general.
PIF, though, was keen to demonstrate that these criticisms are misguided. It worked extensively with the ratings agencies and also put together consolidated financials and then made them public. The aim was to make the credit as transparent as possible. Meanwhile, the strategy for its green framework was to make it best-in-class. It interacted directly with investors and incorporated their feedback into the framework, which has an emphasis on long-term green investments.
Standard Chartered and Credit Agricole CIB were the green structuring advisers. BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan were the global coordinators for the bond offering.
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