(Corrects para 14 on time since last Gazprom deal)
* Emerging borrowers rush to sell bonds, anticipate US yield jump
* Total EM bond issuance YTD at $138 bln, TR data shows
By Claire Milhench
LONDON, March 13 (Reuters) - 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 noted.
“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 remains busy.
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.
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