6 de marzo de 2015 / 12:12 / en 3 años

Boom times over for CEEMEA bond market

* Issuance could drop to less than US$100bn

* Political and market risks abound

* Euro market a beacon of hope

By Sudip Roy

LONDON, March 6 (IFR) - Bond new issuance from the Central and Eastern Europe, the Middle East and Africa region could fall below the US$100bn mark this year after the slowest start to fundraising from the region since 2009.

Political and market risks have tempered transaction volumes so far this year. Although bankers expect to see a gradual pick-up in supply over the next few months, few think deal flow will get anywhere near the US$143bn seen in 2014, let alone the peak of US$194.5bn three years ago.

One debt chief thinks the market tone is as bad as it has been since 2008 when, he said, at least the problem could be pinpointed to one specific cause - the global financial crisis.

Only US$14.14bn was issued in the international markets in January and February, according to Thomson Reuters data, less than half the amount raised over the same period last year. It is also the lowest amount since 2009 when just US$4.22bn was raised in the first two months.

But that year saw a strong recovery with US$104.7bn of CEEMEA bonds eventually printed. Some bankers fear 2015 will pan out much less successfully and could become the first sub-US$100bn year since 2008 when just US$75.68bn was raised. “That’s very possible,” said one capital markets banker. “It looks pretty gloomy.”

Another banker agrees and reckons supply could fall to around US$90bn, a drop of nearly 40% on 2014. “I‘m genuinely concerned the market could disappear,” he said, pointing to the likely long-term absence of issuers from key areas, such as Russia, Ukraine and Nigeria.

A more bullish banker accepts that this will not be an “enormous year” for bond issuance, though he dismissed the most pessimistic forecasts. “I genuinely believe there’s nothing to be downbeat about. We’d all love it if the Russian market was wide open but there are lots of other things going on,” he said.

Still, investors covering CEEMEA are grappling with a number of issues including fears about US interest rate hikes, political tensions, a strong US dollar, weak commodity prices and lacklustre growth.

A recent investor survey from Fitch found that respondents had “pessimistic expectations for emerging market - both sovereign and corporates - fundamental credit conditions, issuance volumes and spreads”, though only 8% expect broad-based financial stress.

NO HURRY

One beacon of hope is the euro market where spreads have compressed and yields tumbled ahead of the ECB’s bond buying programme. Latvia 2024s, for example, are trading at a yield of just 0.72%, according to Tradeweb, having rallied 90bp since the end of last year. Lithuania’s due 2024s are trading inside euro mid swaps.

But though a number of sovereigns are understood to have mandated deals, with the odd exception such as Croatia and Montenegro, most are choosing to keep their powder dry, as they have relatively low funding needs and are in no hurry.

Bankers expect sovereign supply to eventually pick up - both in euros and dollars - but wonder how big volumes will be. Slovenia, for example, was the biggest CEEMEA sovereign issuer last year, raising more than US$7bn. This year, one banker says he expects the Balkan nation to raise only US$1.5bn-US$2bn.

“They don’t have a lot of funding to do this year - about 500m. However, they are allowed to pre-fund and they have about 5.5bn to refinance over the next two years. So they will want to pre-fund at some point this year but I don’t think they need to go immediately.”

Bankers hope that issuance from other sovereigns and the return of irregular borrowers, such as Albania, whose finance minister has said is eyeing a 300m World Bank-guaranteed Eurobond, will plug some of the gap.

But even if sovereign volumes end up on a par with previous years, the big worry is the paucity of issuance from corporates. Only two companies from the region have sold bonds this year - South Africa’s Eskom and Slovakia’s Eustream.

“Sovereign issuance has been steady over the last five to six years,” said the banker. “The swing factor [for overall volumes] has been non-sovereign issuance.”

But with Russian companies, which have traditionally driven much of the region’s corporate supply, likely to be mostly absent this year and economic growth in CEEMEA generally lacklustre, hopes aren’t high. (Reporting by Sudip Roy; editing by Julian Baker and Alex Chambers)

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