(Corrects para 14 on time since last Gazprom deal)
* Emerging borrowers rush to sell bonds, anticipate US yield
* Total EM bond issuance YTD at $138 bln, TR data shows
By Claire Milhench
LONDON, March 13 Turkish banks, a Ukrainian
sunflower oil firm and crisis-mired countries such as Nigeria
and Egypt have all stampeded to raise money on dollar bond
markets this year, trying to get ahead of Fed rate increases and
strike while the market is hot.
A rate increase by the U.S. Federal Reserve is considered a
near certainty this week, but borrowers fear the
pace of tightening will accelerate. Four rate rises now look
possible this year, rather than three.
With U.S. Treasury yields - the rate against which all
assets are benchmarked - already at three-month highs, both
companies and governments want to lock in funding before
borrowing costs rise further.
"There was a strong desire to go to the market as quickly as
possible. It's both a carrot and stick – the carrot being that
the market is so hot right now, the stick being that it might
not be so hot once (U.S.) rates rise," said Ranko Milic, head of
CEEMEA Debt Capital Markets at UBS in London.
"Base rates have the potential to rise, so sooner rather
than later is generally better as there is a risk for that to
reverse," he said.
Bond sales by emerging market companies alone topped $75
billion as of March 8, according to JPMorgan. February sales
totalled $33 billion, compared with a monthly average of $20
billion in recent years, the bank noted.
Sovereign issuance came to $38.5 billion, JPMorgan said,
with Argentina and Turkey raising $7 billion and $3 billion
respectively . The total is already
half of JPM's full-year sovereign issuance forecast for 2017.
Thomson Reuters data showed $137 billion had been raised
this year on hard currency bond markets by March 10, with $91
billion coming from companies.
Issuance tallies provided by various data sources can vary
depending on which countries they classify as emerging markets.
While appetite is strong for the high yields that emerging
markets pay, UBS's Milic said the Fed had prompted many would-be
issuers to buck up. Several firms had rushed to market on the
back of nine-month earnings accounts at investor roadshows,
rather than full-year accounts as is normally the case, he
"We have seen quite a few corporates that have gone earlier
in the year than they would otherwise have done," Milic said,
citing Russian company Rusal as an example.
Sunflower oil producer Kernel broke a three-year
issuance drought in Ukraine, and the pipeline
Russian steel firm Evraz was marketing a bond on Monday, as
were Croatia and Kuwait. Kuwait was expected to raise as much as
$10 billion in its debut international deal.
Gazprom, another Russian company, is preparing to test
dollar debt markets for the first time since November 2014
The buoyant emerging debt picture is mirrored in the market
for U.S. junk-rated bonds, which enjoyed its busiest week in
nine months last week.
FAMINE TO FEAST
New issues have been snapped up by investors who are
receiving large inflows into emerging debt funds. Research house
EPFR Global reckons a net $12 billion has flowed to such funds
already this year.
Some market-watchers partly attributed the rush to a lull in
December when less than $20 billion was raised, as issuers hung
back after the election of Donald Trump as U.S. President.
Regis Chatellier, credit strategist at Societe Generale,
highlighted Nigeria's $1 billion and Egypt's $4 billion sale as
examples of low-rated sovereigns that squeezed in before the
Fed. Nigeria paid a premium of 130 basis points over its
existing 2023 bonds to get the deal done.
But appetite for high-yielding emerging debt remains strong,
with order books on most bonds - even Nigeria, Egypt and Turkey
- far surpassing deal size.
"There has been a structural under-allocation to emerging
markets, which has built up, so to that extent new supply has
been easily absorbed," said Chia-Liang Lian, head of emerging
markets debt at Western Asset.
(Additional reporting by Sujata Rao and Sandrine Bradley,
editing by Larry King)