LONDON, Oct 10 (IFR) - Coming up this week in global capital markets:
QUARTERLY CHECKUP JP Morgan and Citigroup offer a first glimpse into how banks have fared in the third quarter when they release earnings on Friday. China growth worries, oil-mageddon and the Brexit vote hit many hard in the first half, delaying deals and wrecking any hopes of 2016 being a good year for underwriting and advisory. First-half fees were down 23% on a year earlier, the slowest start to a year since 2012.
But a pick-up during July, August and September appears to have eased that pain. Investment banking fees were US$25bn in the third quarter, well up on the US$18bn average of the first two quarters. But the spoils have been unevenly split, with almost all bulge-bracket names losing market share. Third-quarter results should show how well individual firms are balancing costs and revenues - and who could be in line for deeper cuts. A REAL POUNDING All eyes will be on the sterling corporate bond market following last Friday’s 6.3% intraday collapse in sterling. Even before the plunge, cracks had already begun to appear, with just £300m of supply last week compared with the £1.1bn the week before. With bonds selling off in response to the currency move, the long pipeline of potential deals that had been building could be at risk. TAKING THE PIK? French glass bottle maker Verallia will see just how far it can push investors, as it sets pricing on a 500m payment-in-kind deal that will be used almost solely to fund a dividend for shareholders. Such trades have been rare in Europe since Phones 4U went bust in September 2014, one year after raising an aggressive PIK deal to fund a dividend. “It’ll be an interesting litmus test of the market,” one banker said. BLACK IN VOGUE Extraction Oil & Gas hopes to price the first IPO from the US exploration and production sector in two years on Tuesday, in a deal expected to raise US$600m. E&P may be back in favour among investors after a doubling in oil prices since February, but the sector isn’t out the woods yet. Many US and Canadian firms continue to struggle: over 100 firms owing a collective US$68bn have filed for bankruptcy since the start of last year. LONG TIME NO SEE Australia will put offshore appetite to the test with its first 30-year government bond. It is betting that investor demand for duration will help reverse a decline in international participation for AGBs over recent years. But the sovereign is also taking precautions: given the extra challenges in executing such a long trade, it has hired six banks rather than the normal four as lead managers for the sale. LISTING THE LISTINGS OfficeFirst Immobilien wraps up bookbuilding for its IPO, with the German property management firm eyeing 450m in primary proceeds from the deal. The company previously struggled with cost overruns linked to a mammoth Frankfurt office complex that forced it into insolvency proceedings just three years ago. The listing comes after talks with Blackstone to acquire the office portfolio collapsed. WAITING FOR RIYADH A debut bond deal from Saudi Arabia is seen as imminent by many in the markets. It has already chosen Citigroup, HSBC and JP Morgan to manage the sovereign bond issue, in what could be one of the largest emerging market debt offerings ever. The kingdom is turning to international debt markets to help plug a budget shortfall caused by the fall in oil prices in the last two years . OFFSHORE FINANCING Avolon Holdings, a unit of Chinese aviation conglomerate HNA Group, will turn to loan markets to raise US$8.5bn to fund its US$10bn purchase of US-based CIT Group’s aircraft leasing business. HNA has been in an acquisition mode over recent years, and unlike many of its Chinese peers, has turned to foreign rather than domestic lenders to fund its shopping spree. NON-RUNNER Morgan Stanley will likely begin a dribble out of Lloyds Bank shares this week. The US bank was tasked with selling 9.1% of the bank owned by the UK last Friday. It comes after the UK chancellor abandoned a plan to sell Lloyds shares to retail investors. A previous promise offering them a sizeable discount has made recouping the cash taxpayers invested in the bank almost impossible. FLOATING THE DOLLAR Money-market fund reforms that come into effect on Friday could further hike short-term bank borrowing costs, which have already risen sharply in recent months. But many have done little to tweak how they fund their operations, preferring to wait and see how the changes shake up the market. The reforms require the funds to let net asset values, previously kept steady at US$1, float and be marked to market each day. LAST WEEK IN NUMBERS 5bn - Proceeds from Innogy IPO, largest European flotation since Glencore in 2011 18.5bn - Orders for Italy’s 5bn 30-year bond, which priced with a 2.85% yield 490m - Proceeds from Verallia’s 500m PIK toggle deal to be paid to shareholders US$1.18 - Intraday low for sterling on Friday, the lowest in 31 years 7% - annual coupon on Bahrain’s US$1bn 12-year conventional bond (Reporting by Gareth Gore; Editing by Ian Edmondson)