Supranational, sovereign and agency borrowers a group whose members often take pride in defining themselves as being boring and predictable have had to adjust to life in a market that is anything but this year. The most recent example of this was the busiest August most market participants can remember when $42.2bn of new benchmark supply was gobbled up by a global investor base that had been starved of product in preceding months and needed a safe haven in which to invest.
But to dismiss the SSA market merely as a resilient haven is to seriously misjudge the complexity of it. The market, as we head into the last part of the year, is an uncertain place. The fact that German issuers, with KfW leading the way, remain so well bid contrasts the notable absence from the benchmark markets of borrowers like Instituto de Crédito Oficial and, at least recently, Cades. Nobody would suggest that those borrowers do not have access to capital but bankers say they could only access markets at a price they would not countenance. That is a serious counterweight to those who point to the success of German borrowers that the market is on the mend.
Of that late August flurry $21.4bn came from German credits. The balance was issued by credits of the calibre of the World Bank, the Inter-American Development Bank, the African Development Bank and Sweden.
August, then, should have given a clue as to how the rest of the year might work out, perhaps. It has done nothing of the sort. One of the reasons that drove so many borrowers to the market in August was to avoid having to issue in the more traditional bout of September pricings.
Agency borrowers often want to avoid market congestion but the fact that many bankers are unsure of what will happen over the next couple of weeks rather than months shows the turmoil markets are in. The August issuance was a sign of market weakness and lack of investor confidence, not strength and security.
The overwhelming majority of Augusts deals went well with order books reaching subscription within a few hours to allow intra-day launch and pricing another new necessity that syndicates and issuers have had to adapt to in volatile times. That was driven by the volatility stemming from US debt ceiling negotiations and Eurozone instability, in particular, the hammering of Italian and Spanish government bonds and an inability to convincingly resolve Greeces debt problems.
That latter factor has come to the fore again in September. It did not take long for the latest round of negotiations with Greece to break down and for panic to spread once more.
Also in September, borrowers are keen to avoid clashes with planned issuance by the European Financial Stability Facility (EFSF) and the European Union. The EFSF in fact, represents another area of disruption all by itself as the world waits to see if its planned expansion will pass national votes throughout Europe and just what sort of entity it will become and moreover, how much it will need to borrow.
There are reasons for SSA borrowers to be optimistic though. Many are well advanced in their funding programmes. KfW has only 10bn or so to raise for the rest of the year out of a target of 80bn. Compatriot Rentenbank has completed its funding for the year already. Many other borrowers report similar stories across the SSA universe.
It is also worth considering that SSA borrowers are not only managing to keep up with and stay ahead of funding schedules, they are doing so with bigger funding requirements and new competing supply. Cades has raised 70% of its planned expanded funding requirement of around 36.5bn. German agencies FMS Wertmanagement and Erste Abwicklungsanstalt have entered the market in this most tumultuous of years and, in the case of the former, has already enjoyed the sort of safe haven status that may have taken years to achieve in previous years.
Then of course, there are the two new European big guns themselves: the EFSF and a reinvented European Union. Both borrowers made auspicious starts to the year in January with 5bn of five year bonds each. The trades were unquestionable blowouts with the EFSFs debut deal attracting the largest order book ever seen, 44.5bn, eclipsing the EUs over 20bn from a few days before.
But business has not been entirely straightforward for these two credits. With bankers calling for an expanded mission and size for the EFSF and with its eventual borrowing needs no longer so clear, its spreads have widened. As in January, when it made its debut, the EFSF is now one of the focal points of the markets uncertainty.