Emerging dollar bond sales boom from Chinese giants to new frontiers
LONDON: Frontier economies including Tajikistan and Iraq along with credit-hungry Asian firms led emerging market borrowing in the July-September quarter, as 2017 shapes up to be another record year for debt sales.
Stronger economic growth in the developing world and sizeable inflows into bond funds have left asset managers eager for new high-yielding paper, encouraging less frequent issuers to test the market’s appetite.
“It’s a bit of a Goldilocks scenario for EM issuance,” said Regis Chatellier, sovereign credit analyst at Societe Generale. “For a lot of countries, they don’t know what tomorrow will look like and they would rather issue now.”
The US Federal Reserve has signalled one more rate rise by end-2017, but subdued inflation means it is likely to tighten gradually, maintaining a benign backdrop for emerging market borrowers.
Third quarter issuance was running at around US$108.3bil at Sept 20, according to Thomson Reuters data, taking the year-todate total to US$471.9bil.
This was well up on the US$370.7bil raised in the first three quarters of 2016, with some issues still in the pipeline for the current month including a triple-tranche dollar offering from Saudi Arabia that could top US$10bil.
Governments from developing countries raised some US$17.7bil in debt between July and September, TR data showed, with Africa, Middle East and Central Asia accounting for 40%.
JPMorgan analysts said they expected a record year for emerging sovereign issuance of around US$142.5bil.
Among unusual third-quarter deals was a debut US$500mil bond from Tajikistan, the poorest country in the former Soviet Union, which attracted bids of over US$4bil.
Iraq issued a US$1bil bond for its first deal in more than a decade and Ukraine sold a US$3bil bond, its first since a 2015 debt restructuring.
Gabon also issued for the first time since 2015, following African peers Senegal and Ivory Coast to the market.
“The market is now happy to lend to any issuer pretty much,” Chatellier said.
Many deals have enjoyed huge order books from fund managers flush with cash. Year-todate, emerging market bond funds have attracted US$64.6bil, according to EPFR Global data, with hard currency funds accounting for US$35.6bil.
Net inflows over the same 2016 period totalled US$36.6bil, of which hard currency funds attracted US$22.1bil.
Debt sales from emerging market companies totalled US$92bil so far in the third quarter, taking the year-to-date total to US$342.5bil. Asian corporates accounted for 44% of issuance and China alone 27%.
Chinese state-run oil company Sinopec this month sold a four-tranche US$3.25bil bond, following a US$3.4bil deal in April.
“It’s all about China once again,” said Guy Stear, co-head of fixed income research at Societe Generale in Paris. “EM companies outside China have tried to stabilise or reduce their dependence on the dollar market and Chinese companies have happily wandered into the breach.” JPMorgan said it had revised up its 2017 corporate supply forecast to US$440bil from US$380bil.