The update on EMEA’s newly issued equities and bonds this week with:
Adam Kostyál, Head of Europe Listing at Nasdaq Nordics
Sean George chief investment officer, StrukturInvest
- London Stock Exchange – Conduit, the Ecofin US Renewables Infrastructure Trust, Downing Renewables & Infrastructure Trust and VH Global Sustainable Energy Opportunities.
- AIM – Kistos.
Disclaimer: Primary Markets TV is a news update and intended for informational purposes only. Primary Markets TV does not provide investment advice or recommend investment products. Please consult a professional investment advisor when making investment decisions.
Dan Barnes Welcome to Primary Markets TV for Europe, Middle East and Africa – your update on newly issued securities. I’m Dan Barnes. We’ve seen several firms announced their intention to float on the London Stock Exchange, including newly established reinsurance underwriter Conduit, the Ecofin US Renewables Infrastructure Trust, Downing Renewables & Infrastructure Trust, and a close-ended investment company, VH Global Sustainable Energy Opportunities. Later this month we’re also expecting in the small stock market, we’re expecting the launch of Kistos, a newly incorporated, closed-ended investment company which is also focused on the energy sector. Activity on the LSE over the past week has included an IPO from Brownhill Music Royalty Fund, which began trading on Friday. And there’s been a lot of bond issuance reported to the NYSE. Notably, Chinese issuers being supported by HSBC, have been coming to the market with debt, often being of quite a short tenor, typically one year to maturity. Yesterday, Euronext, has seen 12 new listings across its markets. But recently, Deutsche Börs has also had a quiet period, with its last listings, I should say, being retailor fashionette AG, and industrial equipment provider, Compleo Charging Solutions, both in October. A notable recent issuance was the new NL 500 million pound SDG bond, which was due on October 27th. That issuance is followed two SDG bonds issued by NL in euros and dollars last year. That new issue is notable, because the European Central Bank decided bonds with coupon structures, that are linked to certain sustainability performance targets, will become eligible as collateral for eco-system credit operations, and also if a Euro-system outright purchases monetary policy purchases from the 1st of January 2021, provided they comply with all the right criteria. In Vienna Wiener Böerse has also had a quiet second half of the year with nothing new since August. Spain BME has continued to champion bond issuance with its fixed income market, MF, which on Friday welcomed a new 100 million euro bond program from Tècnicas Reunidas to trading. We also saw the issuance of the Lyxor S&P, global-developed, Paris-aligned, climate exchange traded funds on NASDAQ Nordics on the 5th of November. We’re going to hear more from Nasdaq now. So I’m joined by Adam Kostyál, who is senior vice president of Listings Services for Europe at Nasdaq Nordics, and Sean George, chief investment officer for hedge fund StrukturInvest. Guys, welcome to the show.
Adam Kostyál Thank you very much.
Sean George Thanks for having me.
Dan Barnes In the equity space, are there any sectoral trends you’re observing around new issuance and all volumes and activity where you might expect them to be for this time of year?
Adam Kostyál Put it this way, in March, I was not expecting to be where we are right now, but I thought that, that was the end of the world. But in reality, I think there are two things that stand out for the nordic markets – especially the Stockholm market – so we’re able to list SMEs, which is something that Europe is struggling with, because there isn’t the depth of the institutional investor base wanting to put in smaller tickets, and I think that’s fundamentally a key issue in Europe. If you look at the Stockholm market, 80% of households own shares, so you fundamentally have an active equity market from the core in terms of understanding and wanting to participate in equity. Therefore, we have this from-the-ground-up-ecosystem, to support smaller midsize companies that want to access exchange. That’s why we’re close to 60 listings so far this year. And then if you look at the sectors that are coming to market, I think what really stands out is, that they all these trends that we were talking about for many years, ‘when are they going to come? Where are they going to stand out, when are they going to establish themselves?’ And they have now proven to be key for society to function overall. I mean, in terms of the digital footprints, if you look at companies such as Zoom, you look at companies in communication, so it’s a case of how do you engage business wise from a digital perspective? And I think that digital footprint is now not no longer a nice-to-have, it’s a must-have. And I think from a retail or from an institutional investor base, there is a great appetite to participate in that from an equity perspective. So those are some of the key trends that stand out. Overall the equity market has been very strong and continues to be strong, especially in this low interest rate environment. So everybody is looking for a return and therefore all sectors are in a way benefiting from a very active equity market. However, some sectors need to show that they have returned from the COVID-19 slump, and maybe need one or two quarters to show that they have really recovered, before they can go out to market.
Dan Barnes And Sean, on the fixed income side, are issuance levels where you might expect them to be and have you’ve seen any particular trends around bond issuance?.
Sean George I think the main themes would be that, we’ve had a record year for bond issuance and the main theme that characterized this year was a lot of issuance was pulled forward, so people issued when the window was open for obvious reasons. We weren’t sure what the trajectory of the virus was and therefore a lot of issuance, and some of the issuance for next year even, was pulled forward during the summer and early fall. And then you saw a second round of pulling forward prior to the US elections. You had many issuers saying, ‘this exact scenario that we’re seeing today in the market, where we might have an undecided US election,’ we had agreed that this was really bad for markets and the markets have done nothing but rally, mostly because people like myself had hedges on. The ECB is more involved in the European credit market than the Fed is in the US credit market. That dynamic is expected to be even more pronounced in the December meeting. I think the comment from the Guard yesterday was ‘the ultimate bazooka,’ so she’s really setting the bar pretty, pretty high for herself. She’s going to have to come out Draghi times two, to satisfy the market, but that’s a problem for December. So the dynamics are the book coverages are good. Only one thing that I would note; on Thursday of last week, we participated in a bellwether US company, one of our favorite credits. And I like to think we’re a good client, but we got 100% allocation of last week. When we’re getting 100% allocations, maybe the US market is a little more tired than the European market. Towards the end of last week you saw UPM came with a green bond. So the average books have been roughly three times covered here in Europe. UPM-Kymmene, a pulp and paper, cyclical company with their new, green bond doubled the cover, so roughly six times covered. But one thing that I’d like to point out, as we are an ESG fund, we also focus on social and and a lot of other things, but we obviously buy green bonds. What we do and what we do differently is we hedge that interest rate risk. That UPM bond was a BBB bond, paper sector, cyclical, came with a coupon of 12.5 basis points, 2028 bond, so while we are doing good with these green bonds, it’s very important that we focus on social, vaccine or whatever the bond may be helping in our societies today. The investor base needs to be cognizant of the interest rate risk that they’re taking on in these portfolios. I believe one of the big trends this year is roughly 17 trillion worth of debt is yielding negatively. If we were to get inflation on the heels of a pandemic expansion – which I think a lot of people agree is coming some point next year with the virus information we got last week, and it’s increasingly looking like that – we could see an uptick in inflation and an uptick in inflation could be the first shot across the bow for higher rates. And so that’s the dynamic that we see, the cautionary tale, although we’re very positive on the macro environment.
Dan Barnes And Adam, do you expect ESG to be one of the primary drivers of new issuance in the first quarter, perhaps of next year?
Adam Kostyál If a company does not have a clear ESG story, they’re missing out. And what we’re seeing now is the issuance of green shares on our exchange, so we’re rolling out a program to support that. You see cleantech companies being much more into focus. The innovation that’s coming from cleantech is clearly a center of appetite for institutional investors to be a part of. Whether you are a listed company, whether you are aiming to list, you need to have a good ESG story. You need to be telling it well because the appetite is there and more and more of the institutional money is heading in that direction, especially passive. So, from that perspective and also within retail, that is much more awareness around that being a driver of investment.
Dan Barnes Absolutely. Guys that’s been fantastic. Thanks so much for your time.
Both Thank you.