DECEMBER 14 2019 ISSUE 2313 www.ifre.com Double Dutch: Shell signs US$10bn sustainability-linked loan with SOFR pricing Saudi Aramco achieves US$2trn ‘vindication’ but will international money now step in? Deutsche admits clean-up will be slower and capital release unit won’t release any capital PLUS: IFR AWARDS 2019 EQUITIES PEOPLE & MARKETS PEOPLE & MARKETS LOANS Another black Equivalence Latest battlefield Bulging pipeline eye for SoftBank scrap looms for for banks’ trading provides new as OneConnect City after Johnson units: quant year cheer for lev slashes valuation triumph investing loan bankers 06 07 08 10 1 IFR Cover 2313.indd 1 13/12/2019 20:03:06 TURN DATA STREAMS INTO ROCK-SOLID STRATEGY. Power sound investment decisions with Datastream, covering 65 years of data, across 175 countries. refinitiv.com Upfront n OPINION INTERNATIONAL FINANCING REVIEW Hollow victory banks – for the fact that the Saudis were so wedded to the US$2trn valuation the banks told them was achievable. he Saudi Aramco IPO is a “dream come true”, said an The problem, the spin goes, wasn’t that the banks were Texcitable headline in a Saudi newspaper last week, while only telling Aramco and the government what they wanted a Saudi journalist praised the country’s de facto ruler to hear. Mohammed bin Salman as a fortune-teller who could predict It was that (supposedly) Klein refused to help them the future. engineer the bait-and-switch that they had in mind all along The ululation was based on a 17% rise in the trading price by declining to tell the Saudis that a US$2trn valuation was of Aramco’s stock on the local Tadawul exchange that saw unrealistic. the company valued – albeit briefly – at US$2trn, allowing Only insiders really know what Klein was telling the enthusiasts to claim that the deal was a triumph because that Saudis. But are banks really happy to be saying, in effect, “we was the valuation that the crown prince had said was the wanted to tell the truth, but Michael wouldn’t let us”? minimum acceptable (even if he then accepted less). It certainly looks like that. And it’s definitely not a great And fair-minded observers will acknowledge that such a look. jump in a newly listed company in its first few days’ trading suggests a well-priced, well-received IPO. Yes, there has to be a suspicion that some of the friends-and-family buying was Unicorns at home not entirely natural (to put it gently) but it is also fair to say that another large chunk of price-insensitive demand will hinese technology companies are still determined to push come when the company is admitted into the MSCI index, Ctheir private valuations into the public markets. If that is and that will also support the share price in the short term. the only goal, a domestic listing would serve them best. But is it possible that some Saudi patriots have allowed The US listing of OneConnect Financial Technology their enthusiasm to over-power their memory? confirms what markets already knew: private market The thing is, when the crown prince and his followers (not valuations have run far ahead of reality. to mention all the bankers who were chasing fees) laid out OneConnect raised US$312m from a NYSE IPO last week at the vision for the Aramco IPO it was about much more than a a market capitalisation of about US$3.7bn, around half the US$2trn valuation. It was supposed to be a key point in the US$7.5bn valuation when Japan’s SoftBank bought a stake transformation and internationalisation of the Saudi last year. economy via the so-called Vision 2030. After the spectacular WeWork flop over the summer, other It was about bringing in foreign capital; opening up the technology unicorns have to lower their targets if they still main pillar of the Saudi economy to foreign influence; want to go public – especially in the US market. spearheading Saudi Arabia’s move into a brave new world of The next to try its luck is Ucommune, a four-year-old co- openness that would welcome foreign investment. It was working start-up based in China that looks strikingly similar about putting the crown jewel of Saudi business into the to WeWork. Ucommune was valued at about US$2.6bn when portfolio of every major international fund manager and it raised money last November, and is likely to list at a sovereign wealth fund. valuation of well below US$1bn. It was supposed to be the kind of coming out party in the US investors are not likely to risk their hard-won cash on a equity world that the country’s (genuinely successful) US$12.5bn WeWork lookalike at this point, so the success of these debut US dollar bond issue had been in the debt market. listings will depend mainly on friendly Chinese investors. But little of that has happened. OneConnect’s IPO had strong backing from Ping An And set against all that, the decision to reject an Insurance, already its biggest shareholder and biggest international IPO that would have helped meet those targets customer. Ucommune will need a similar sponsor. in favour of an unambitious local affair purely to meet an But a US listing with a small group of Chinese investors is arbitrary valuation target set at the apparent whim of the hardly worth the effort. And in years to come, they may not country’s leader looks just a little short-sighted. need to bother. China’s domestic market is emerging as a credible alternative for fast-growing technology listings. The Star Wasn’t me board, which comes without the profit tests and price caps that make the wider A-share market so unappealing, is n other news, the fact that the deal ended up as something already attracting a host of fast-growing companies to list in Iof a Pyrrhic victory was all, apparently, Michael Klein’s Shanghai. fault. Looser rules on major shareholders would tip the balance Or so say the banks involved (apart from Citigroup, where further in Shanghai’s favour. As things stand, an overseas Klein used to work) in an effort to explain what went wrong. listing gives company founders an easy route to monetise Klein was an adviser to Aramco on the deal and he is being their holdings, while domestic rules mean they would be blamed in seemingly every tick-tock story in the financial locked in for years. If China is serious about keeping its press – thanks to some heroic spinning efforts by the other unicorns closer to home, that will have to change. International Financing Review December 14 2019 1 2 IFR Upfront 2313 p1-2.indd 1 13/12/2019 20:25:32 Clarity, increased. For over 40 years, IFR has been clarifying the complex global capital markets by providing intelligence on current deals and new opportunities, along with reliable data and trusted opinions. The IFR website at www.ifre.com has been redesigned. It now features improved search capabilities, expanded navigation, powerful personalization tools and a more intuitive layout. It combines IFR’s industry-leading content from across all the global capital markets asset classes onto a single, consolidated platform. When you’re looking for clarity on the global capital markets, look to the new IFR. ifre.com/new-ifr-website 2 IFR Upfront 2313 p1-2.indd 2 13/12/2019 20:25:32 INTERNATIONAL FINANCING REVIEW Contents DECEMBER 14 2019 ISSUE 2313 TOP NEWS 04 LOANS Groundbreaker Shell signs US$10bn sustainability-linked loan with SOFR pricing. Jumbo deal is a significant moment in the transition away from Libor. 04 EQUITIES Achievement Aramco trades up but will international money step in? With US$2trn valuation reached, Kingdom boasts of vindication. 04 EQUITIES Disappointing Another black eye for SoftBank as OneConnect slashes valuation. IPO goes through but fintech company faces another embarrassing haircut. 06 PEOPLE & MARKETS Hurdle Equivalence battle looms for City after Johnson triumph. Brexit negotiations will dominate early months of the new UK government. 07 Scrap Latest battleground for banks’ trading units: quant investing. 08 Owning up Deutsche says clean-up will be slower and capital release unit won’t release any capital. 08 New year cheer Leveraged loan deals totalling around €14bn are set to launch in the first quarter. 10 Libor replacement Freddie Mac debuts SOFR-linked CMBS. 13 PEOPLE & Upbeat Q4 trading up on year, led by FICC. JP Morgan, Citigroup and 15 MARKETS Credit Suisse all bullish, but advisory/underwriting more muted. Purge Morgan Stanley is axing about 2% of its global workforce, or about 1,200 to 1,500 jobs, in a move to cut expenses ahead of a potential slowdown. 16 Upscaling UBS is planning to double the investment banking headcount at its China securities joint venture. 20 Raising the bar Deutsche Bank aims to lift “unacceptable” returns. 21 Uplift Barclays CIB has promoted 56 staff to MD status, down from the scale of the past two years. 21 Study The FSB is scrutinising the increasing use of cloud computing by financial institutions. 24 BONDS Record ECB largesse spurs buybacks. Tender volumes soar as yields tumble. 25 Sterling KBN fires post-election starting gun. 28 Asia-Pacific SEEK expands unrated market. 35 EMERGING Downgraded Fitch sounds alarm over Lebanon’s debt burden. 47 MARKETS India Issuers embrace US dollar debt. 49 Vietnam Issuance remains on pause. 50 LOANS Regulation New EU rules will force fund managers to address ESG. 55 Japan Sustainable lending gathers momentum.