25 de septiembre de 2015 / 8:09 / en 2 años

REFILE-EM suffers as big boys stay away

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By Sudip Roy and Paul Kilby

LONDON, Sept 25 (IFR) - The lack of a bellwether borrower is making it tougher for the emerging bond markets to find a support as issuers continue to struggle to sell deals.

In particular the US dollar primary market, the backbone of the asset class, has seen issuance volumes falter as a series of negative headlines, many of them emerging markets-inspired, has shaken confidence.

Although emerging markets spreads are performing no worse than US credit since oil began selling-off again in June, the horrible reverses in EM FX and local bond markets are engendering a view that the asset class is in crisis.

Historically, a well-renowned sovereign or national champion would issue during such times of stress to calm market fears, as Turkey did when it sold a 30-year note at the beginning of the year after a period in which many emerging markets credits had seen their curves get battered.

“The market needs to see a couple of deals come and perform a bit. So far, everything has been painful,” said a senior emerging markets banker.

But Turkey and other previously stalwart issuers, such as Brazil, Petrobras and Gazprom are no longer in a position to stabilise the market.

“Beyond Mexico, I can’t think who would be the ‘banker’ trade,” said a syndicate official in London.

“There were many iconic borrowers before - Petrobras and Gazprom were probably the most iconic,” said another banker in London. “I think Turkey is the last remaining warrior.”


But Turkey, too, faces huge political and security headwinds, which is being reflected in the financial markets. The sovereign’s five-year CDS has widened by 52bp in the past week, according to Thomson Reuters.

Analysts are becoming increasingly concerned about the state of affairs in the country. On Thursday, Demetrios Efstathiou, head of trading strategies at ICBC Standard Bank wrote a note entitled: “Turkey - In danger of becoming too complicated to analyse.”

Brazil is struggling even more. Its five-year CDS is now trading in line with Single-B levels. “I think if Brazil chose to issue right now, it would send the message that they were desperate and might backfire,” said a banker in New York, who added there was a real chance such a deal would fail anyway.

It was left instead to Colombia to try and provide some reassurance to the market through a trade this week but even with a hefty new issue premium, the deal struggled.

Colombia, which could be downgraded in the coming months, according to SG analysts, paid a 25-30bp new issue concession on a US$1.5bn 10-year note that then traded weaker in the secondary.

Chilean state-owned copper company, Codelco, was able to ride a rare rally earlier in the month to print a US$2bn 10-year note with just a 10bp concession but it lacks the bellwether status of certain other emerging markets issuers.


Those iconic names that are fundraising are doing so in non-dollar markets. Poland, for example, sold a 10-year bond in euros in early September, while Mexico’s state-owned oil company, Pemex, is meeting investors in Switzerland.

That doesn’t help the broader market, though. “I think the market wants to see EMBI Global eligible sovereigns, quasi-sovereigns and national champion corporates in benchmark size and 144A US dollar format,” said a third banker in London.

That’s especially so as fund managers are suffering big outflows, and to the extent they can deploy cash, they would rather have a blue-chip issuer to invest in, said the New York banker.

The trouble is the dollar pipeline is full of the opposite kind of credit. The vast majority of deals hitting the screens are low-rated infrequent issuing sovereigns, many with huge economic challenges.

Iraq, for example, is hoping to raise up to US$2bn through its first bond sale in nearly a decade. But a week after finishing roadshows, the sovereign has yet to open books.

A trade such as Iraq would be challenging at the best of times. But in the past month alone, the yield on its only outstanding 2028s have jumped more than 100bp, with the bonds quoted at 11.59%, according to Thomson Reuters.

Ghana is another Single-B rated sovereign in the market that desperately needs funds. It’s in the middle of roadshows that finish next week, before potentially issuing a note that will carry a rare partial guarantee from a World Bank agency.

The up to US$400m guarantee from the International Development Association will “facilitate the sovereign’s access to external funding of up to US$1bn,” said Moody’s in explaining that it will rate the notes two notches higher at B1 than Ghana’s standalone rating.

Two Asian Single-B trades were priced this week. Fiji printed a niche US$200m five-year bond that was linked to a tender offer.

Of greater significance was a US$500m 10-year note from Pakistan off an order book of about US$1bn. The muted response was in contrast to its last conventional bond deal in the dollar market in April 2014. Then it raised US$2bn through a dual-tranche offering.

Reporting by Sudip Roy and Paul Kilby; Editing by Matthew Davies

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