Corporación Andina de Fomento returned to the sterling public market after more than two decades away on Tuesday where it was met by enthusiastic investors attracted by the juicy spread on offer.
The Latin American development bank has had a great start to its 2024 funding. It more than doubled its previous record for order book size in January with a $1.75bn five year bond that came ‘almost flat to fair value’, a deal that was followed by a €1.5bn six year that grabbed an even bigger book the following month.
This week, the Aa3/AA/AA- rated issuer is back to the market with its largest ever sterling print of £1bn.
The new 4.75% April 2029s were priced at 95bp over the 0.5% January 2029 Gilt after 10bp of tightening from guidance at 105bp over area, by lead managers Barclays, Bank of America and HSBC.
Final book exceeded £4.25bn — the largest for any SSA sterling bond in 2024, according to GlobalCapital’s Primary Market Monitor (PMM). The data excludes Gilt syndications from the UK sovereign. Those SSA deals paid an average 29bp over Gilts, PMM data shows.
“We decided to issue this week because wanted to maintain the positive momentum of our euro and dollar trades and bring it to the sterling market, which turned out to be perfect timing,” said CAF’s head of DCM and derivatives, Manuel Valdez.
He was particularly happy with the size of the order book, he said, as it was not only the biggest from an SSA this year but also of any inaugural trade in the sterling market. “The other SSAs that do this kind of size in sterling are the likes of KfW and the EIB”, he added. In addition, 18 out of the 110 investors in the book were first-time CAF buyers.
“This was effectively their debut in sterling and having the biggest book of the year is saying something,” said a CAF lead manager. “They last issued £175m in 2002 so a lot of the fund managers these days wouldn’t really know about it. And the sterling market is not necessarily an easy place and you can definitely find names that just don’t fit, unlike the euro market where you can always find a place, even though sometimes it doesn’t really work that well. In sterling, you don’t have that many investors so you just can’t make mistakes.”
Because of its near-debut status, CAF and its leads spent time doing some marketing as well as price discovery, added the lead. “The issuer is willing to approach it as a new market and really invest in it,” he said.
“We also had a reasonable amount of price discovery. We started with 105bp but we were always going to tighten more than just one or two basis points and because of the response, we tightened 10bp and that got CAF a very competitive funding versus the benchmark currencies.”
Given its long absence from the sterling market and unique status among SSAs, fair value for CAF is “very difficult because there is nothing really to measure it with”. “We had to look at their bonds in other currencies and then trying to triangulate from there,” the lead said.
Valdez too said that its recent dollar and euro trades were used as references, as well as other debut sterling trades, with “quite a lot of price discovery” from investor meetings, which helped it gradually discover the landing point.
The issuer always thought it could land in the 90-95bp area, said Valdez , and it ended up pricing its deal at a level that is “almost identical to what we could get in US dollars” on an after-swap basis.
In addition to dollar, euro and now sterling, CAF has also printed a public deal in Australian dollars this year in February, and raised A$500m from those 5.3% February 2029s.
CAF intends to be a repeat issuer in sterling now that it has re-established access to this market. “We have always had the idea that if we were to return to sterling, it would be to replicate what we have done in the Swiss franc market,” said Valdez.
“For us it's not a one-shot deal, and the idea is to maintain a presence on an annual basis. I think that was one reason we were able to receive such strong demand."
This story was updated on April 11 with comments from the issuer.
