The EMEA debt capital markets re-opened in May, with new issuance particularly strong in the sovereign sector, as investors re-gained their appetite for emerging market issuance.
For emerging markets as a whole, bond issuance rose 35% compared to the first quarter of 2008, reaching US$228bn. In the last three months, monthly issuance averaged US$50bn, while around US$30bn was issued in both January and February.
Sovereigns were particularly active, with issues from South Africa, Poland, Turkey and Slovakia.
South Africa issued a 10-year foreign bond worth US$1.5bn on May 19. It was priced at +375 basis points over US Treasuries. Lead-managers were Absa Capital, its parent Barclays, Standard Bank and JPMorgan.
Mark Hussey, head of debt capital markets at JP Morgan in South Africa, says: “The South African government had indicated in the budget that it was looking to raise US$1bn. We, together with Barclays and Standard Bank, were able to build a very substantial order book, totalling US$7bn, so the deal was increased from US$1bn to US$1.5bn.”
Slovakia issued a €2bn five and a half year Eurobond in early May, lead managed by HSBC and Societe Generale. It was priced at 190 basis points over Bunds. The Czech Republic also priced a €1.5bbn five and a half year Eurobond at 190 basis points over Bunds in late April.
In early May, Poland re-opened its five-year Euro-denominated benchmark bond for €750mn. The re-opening yields 5.552%, which is 280 basis points over mid-swap rate. The original bond offering issued in January 2009 was priced at 300 basis points and the yield of 5.94%. The lead managers on the transaction are Citigroup, ING and SG CIB.
At the end of April, Turkey issued a US$1.5bn 10-year Eurobond, attracting a strong following from US institutional accounts. The deal attracted more than US$7bn of orders from 197 accounts, enabling bookrunners Bank of America-Merrill Lynch and JP Morgan to price the bonds with a yield of 7.6%, inside the initial price guidance of 7.75%.
Romania, Croatia, Bahrain are preparing new issues, while Hungary says it also considering a Eurobond issue. Russia's ministry of finance has also said it is considering raising up to US$10bn on the international markets next year, which would be its first Eurobond issue in 10 years.
Corporates returning
The EMEA corporate bond market is also showing signs of life. Credit Suisse arranged a €2.25bn 10-year Eurobond deal for Gazprom in April. The bond’s oversubscription pushed the company to issue an additional US€250mn of notes, €1.25bn were sold into the market and €1bn was bought by the underwriter Credit Suisse.
The rouble bond market has also rallied, with big deals from Gazpromneft and MTS, and an Ru35bn (US$1.1bn) 10-year deal in the pipeline for Transneft.
In Poland, TPSA Eurofinance France, an arm of Poland's dominant telecoms group, re-opened the market for central European corporates with a five-year €500mn bond on May 13. The deal, which was lead-managed by Barclays Capital and Societe Generale, was heavily over-subscribed, and priced at 350 basis points over mid-swaps.
In the Middle East, Mubadala Development, the Abu Dhabi government’s strategic investment arm, offered US$1.75bn in two- tranche bonds to international investors in early May, just days after publishing its annual report for the first time that disclosed almost Dh12bn in losses. Mubadala’s offering included a five-year US$1.25bn issue that was priced 395 basis points over US Treasuries and a ten-year US$500mn issue priced at 462.5 basis points over US Treasuries.
While the EMEA corporate market is re-opening, it still faces a lot of competition for investor demand from OECD corporates.
“There’s been some sovereign issuance, not much from the corporate sector,” says Chris Tuffy, head of EMEA debt capital markets. “The market is open, it’s just a question of the price borrowers are willing to pay. When you have western companies like Volvo paying 600 basis points for short-term debt, it obviously pushes up prices for emerging market borrowers. Right now, many EMEA issuers are saying they want to be priced at the same levels as Volvo, which is not realistic.”
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