Sustainable debt market to top $400bn in 2020, claims new report

BY Fraser Tennant

Driven by an expansion of the pool of financing options for investors, 2020 is likely to see the sustainable debt market surpass $400bn, according to a new report by S&P Global Ratings.

In ‘Led By Green Bonds, The Sustainable Debt Market Looks To Surge Ahead’ S&P notes that issuance in sustainable debt has doubled in 2019, with the primary driver being green bonds, which is expected to remain the main type of sustainable debt instrument in 2020.

"We also expect the sustainable debt market to continue to diversify and innovate, as investors look for alternative ways to contribute to sustainability objectives," said Noemie De La Gorce, ratings credit analyst at  S&P Global Ratings. “Furthermore, the market shows few signs of abating. Strong market fundamentals along with persisting positive credit conditions in the private sector are likely to support further green issuance growth in the next year.”

The report’s key takeaways include: (i) green-labelled issuance is expected to reach close to $300bn in 2020, partly reflecting the surge in absolute global fixed-income issuance and private financing; (ii) other sustainability-labelled debt instruments have emerged, including social bonds, sustainability bonds and sustainability-linked loans, which increased to about 35 percent of the total sustainable debt market in 2019; (iii) the unique and unprecedented regulatory and political push for green and sustainable finance in Europe will help to consolidate the region’s leadership in green-labelled issuance; and (iv) the majority of green-labelled proceeds will remain allocated to the energy transition, which absorbed 80 percent of proceeds in 2019.

Looking ahead, the S&P report suggests that issuance in the labelled green bond market could grow close to $300bn in 2020, after achieving a record $238bn in 2019. "While it still represents a minor part of global issuance, this share is increasing – to about 3.5 percent from less than 1 percent five years ago,” added Ms De La Gorce. “We expect this growth to be a long-term phenomenon, with sovereign and regulatory interventions, particularly in Europe, acting as a catalyst for private issuance.”

That said, the report sounds a note of caution, stating that growth levels are insufficient to bridge the existing financing gap between available sustainable debt and the investments needed to transition to a low-carbon and climate-resilient economy, which the UN. estimates will be at least $60 trillion by 2050.

Report: Led By Green Bonds, The Sustainable Debt Market Looks To Surge Ahead

Oil giant Saudi Aramco valued at $1.88 trillion following IPO

BY Fraser Tennant

In what ranks as the world’s biggest initial public offering (IPO), the Saudi Arabian Oil Company (Saudi Aramco) has officially listed on the Saudi Stock Exchange (Tadawul), its stock jumping 10 percent in market value to $1.88 trillion.

Shares closed at 35.2 riyals each, up from the IPO price of 32 riyals and at the daily limit of price moves allowed by the Tadawul exchange. Furthermore, the IPO process, which concluded on 4 December 2019, generated more than five million subscriptions by institutional and individual subscribers.

Saudi Aramco’s listing and share trading debut was marked by a symbolic ringing of the Tadawul bell by his Excellency Yasir Othman Al-Rumayyan, chairman of the board of directors, and Amin H. Nasser, president and chief executive.

“This is a proud and historic moment for Saudi Aramco and our majority shareholder, the Kingdom,” said His Excellency. “Saudi Aramco is beginning life as a listed company on Tadawul, together with all our new individual and institutional shareholders here in the Kingdom, in the region and around the world.

“My focus, and that of our board of directors, is to work in the interests of all shareholders, guiding Saudi Aramco as it continues to fulfil its vital role in global energy supply, while striving to create long-term value to benefit all shareholders,” he continued. “Our approach is underpinned by a disciplined capital allocation process and a highly experienced senior management team.”

A state oil company with a rich history, Saudi Amarco’s presence in the Kingdom dates back to 1933.

“Our success since that time is based on the strong foundation and values created by our pioneers and reinforced by subsequent generations of Aramcons,” said Mr Nasser. “Today, that foundation, those values and this legacy are being carried forward by my colleagues around the world.”

Going forward, by building on its low-cost production and reliable supply of low carbon-intensity crude oil to its customers, Saudi Amarco has pledged to remain focused on providing its shareholders with resilient value creation through crude oil price cycles.

His Excellency added: “The IPO underlines the Kingdom’s commitment to nurturing a strong capital market and demonstrates further significant progress in delivering Vision 2030 – the Kingdom’s transformation, economic growth and diversification programme that continues with pace and determination.”

News: Aramco Shares Rise 10% After World’s Biggest IPO

IPOs on the up

BY Richard Summerfield

2017 has been a bumper year for global IPO activity. According to a new report from EY, by deal number, 2017 was the most active year for IPOs globally since 2007.

The report, 'Global IPO trends: Q4 2017', notes that to December there were 1624 IPOs with $188.8bn raised – an increase of 49 percent by number of deals and 40 percent by capital raised, compared with 2016.

IPO activity in all regions has seen double digit growth, with the Asia-Pacific region dominating. There was an increase of 44 percent in Asia-Pacific in 2017 with 935 IPOs completed. The bulk of the activity in the region was completed in the first half of the year.

Q4 was the weakest period with only 240 deals – a 4 percent year-on-year decline. Proceeds in 2017, at $73.2bn, were only 0.2 percent higher than in 2016, indicative of a decline in average deal sizes.

Exchanges based in Asia-Pacific took the top three rankings globally by deal number. Greater China exchanges saw 582 new listings in 2017 – a 68 percent increase on 2016.

IPOs in the US also saw a notable increase in 2017, with 174 raising $39.5bn, an increase of 84 percent in proceeds and 55 percent by volume compared with 2016. According to EY, the Americas were responsible for 13 percent of global deals and 27 percent of global IPO proceeds in 2017.

Dr Martin Steinbach, EY Global and EY EMEIA IPO leader, said: “2017 will close with more IPOs than any year since 2007. With this great momentum, IPO candidates are lining up for 2018. The outlook appears bright, driven by lower volatility across regions, high valuation levels and a renewed appetite for cross-border IPOs, particularly in the US, Hong Kong and London. A healthy global pipeline across a broad range of sectors and markets suggests IPO activity levels will be up with more megadeals, thereby increasing the global proceeds in 2018.”

2018 is also expected to be a notable year for IPO activity, with many mega-deals said to be on the horizon. Emerging markets contributed strongly to 2017’s IPO activity, and the EY report notes that a number of state-owned enterprise IPOs are expected across the Middle East and North Africa next year, with exchanges in the US, Greater China and the UK also likely to feature heavily.

Report: EY Global IPO trends: Q4 2017

Outlook for global IPOs appears strong

BY Richard Summerfield

The global IPO market has belied the uncertainty surrounding the global economy, registering the most impressive Q1 in a decade, according to a new report from EY – 'Global IPO Trends: Q1 2017'.

EY’s report reveals that it was the most active first quarter by number of IPOs globally since 2007, with 399 IPOs raising $47.5bn. In terms of year-over-year growth, there was a 92 percent increase  in number over 2016, and a 146 percent increase in total value.

The technology sector was the biggest sectoral winner. The industry contributed $6.5bn despite not having the highest number of IPOs. The tech space saw 45 offerings compared to 66 in the industrial sector, which registered proceeds in excess of $4.1bn. By contrast, the telecommunications space was the least active sector, with only six IPOs raising just $351m.

In the US market, 24 IPOs raised $10.8bn, the region’s best performance since Q2 2015, when 72 IPOs raised $14.3bn. The region suffered in comparison to the Asia-Pacific area, which was led by Greater China. In total, Asia-Pacific generated 70 percent of the total number of IPOs, for $16.2bn. However, the US’ performance was still strong. "The first quarter of 2017 was one of the strongest for the US IPO market and established a solid runway for more deals for the remainder of the year”, said Jackie Kelley, EY Americas IPO Markets Leader. “This positive performance should attract more tech and unicorns to the public markets and further open the door for other sectors such as retail, energy, and real estate. With the market currently insulated from the political uncertainty, more companies are expected to enter the filing process."

Dr Martin Steinbach, EY Global and EY EMEIA IPO Leader, said: “This is a promising start to global IPO activity this year. In the face of sustained global economic uncertainty, the first quarter of this year has set the stage for accelerated growth in 2017. Economic fundamentals are improving in the major developed economies. Equity index performance and valuations are trending upward, with several major indices reaching all-time highs. Concurrently, volatility is low, underpinning positive IPO sentiment, which is also supported by the successful US listing of a large technology unicorn."

Report: Global IPO Trends: Q1 2017

Global ETF AUM to top $7 trillion by 2021

BY Fraser Tennant

Exchange Traded Funds (ETFs) are expected to grow exponentially over the next five years, with global assets under management (AUM) set to top $7 trillion, according to a report released this week by PwC.

In ‘ETFs: A roadmap to growth’, PwC predicts that the ETF market will achieve further significant growth through entering new markets, expanding distribution channels and asset classes.

The report’s main findings show that: (i) the North American ETF market is expected to grow to $5.9 trillion by 2021 (a 23 percent cumulative annual growth); (ii) the European market is expected to grow 27 percent annually (reaching $1.6 trillion AUM by 2021); and (iii) Asian firms expect ETF AUM to reach $560bn by 2021 (an 18 percent annual growth rate over five years).

Furthermore, the top three segments that are driving this growth globally are financial advisoes, online platforms and retail investors (online platforms having overtaken wealth management platforms to take its place within the top three).

Also found to be a factor in the growth of ETF markets is the advances seen in technology and data analytics, which have encouraged new product creation and driven an evolution in distribution channels. In addition, says the PwC report, digital technology and Big Data will continue to enable successful firms to improve decision making processes, streamline costs and transform investor relationships.

“The global ETF market has a bright future ahead but the next few years will not be without their challenges," said Nigel Brashaw, global ETF leader at PwC. “The ETF market continues to be increasingly crowded, particularly in North America and Europe, where both maturity and momentum continues to dominate.

“Many firms are looking to expand their global footprint which presents challenges as well as opportunities with respect to local and global regulations, tax laws and establishing working relationships with distribution partners.”

Another key challenge and one cited as a major obstacle to growth by 47 percent of survey respondents is that of increased regulation.

Mr Brashaw continued: “Firms across the globe that wish to take advantage of the booming ETF industry will need to invest in investor education, differentiated products and strong distribution channels. There is plenty of competition in the sector and we expect the industry to grow at a healthy and accelerated rate.”

The PwC report surveyed executives (more than 70 percent of the participants were ETF managers or sponsors from approximately 60 firms around the world) during 2015 using a combination of structured questionnaires and in-depth interviews.

Report: ETFs: A roadmap to growth