Frontier issuers bring political risk to bond world
* Low-rated sovereigns jump into market
* Yields do not reflect political risks
* Political risk insurance fails to find favour
By Christopher Langner and Sudip Roy
SINGAPORE, April 9 (IFR) - Investors desperate for higher-yielding securities are snapping up bonds from speculative-rated countries, potentially ignoring their political risks in the process.
Pakistan, a country with a near-default rating from Moody's and a history of political and economic strife, sold $2 billion of US dollar-denominated bonds on Tuesday and paid less for selling a 10-year bond than Zambia, a slightly higher rated peer among so-called frontier credits.
The two-part offering was Pakistan's first in seven years and was sold a day after other junk-level credits, including Sri Lanka as well as Zambia, sold new bonds.
More offerings are expected from some of the most bottom-rung sovereigns as frontier countries attempt to beat an expected hike in funding costs later this year as US interest rates rise.
Ecuador, which defaulted on foreign debt in 2008 in spite of being able to repay, is in active discussions about a possible transaction, while even Ukraine is mulling the idea of a comeback in the second half of the year. Continuación...