Issuers, and their bankers, have had to become far more savvy about when they bring deals, and at what price.
“Despite the volatility, by and large we are still doing well,” said Dino Kronfol, CIO at Franklin Templeton in Dubai. “We’re a couple of weeks into the turbulence, but market activity is not moving into a full blown crisis. There have been couple of aborted transactions, for example Indonesia and First Abu Dhabi Bank, but this is not uncommon, and most likely appropriate advice to wait for calmer markets.”
Kronfol added that he didn’t think there was diminished appetite for risk overall, but acknowledged that pricing may be different.
“People are more risk aware, and acknowledge that they need to differentiate in EM, which is such a wide universe,” he said.
Issuers certainly seem to be banking on continuing investor appetite for risk with several high beta names opening books or announcing trades on Wednesday.
Republic of Kenya opened books on its dual tranche offering after wrapping up investor meetings on Monday, as has Belarus. Corporate bond action is coming in the form of Trans-Oil which is marketing the first ever Eurobond from Moldova at 10% area.
Other key events for investors this week include South Africa’s budget announcement, due later on Wednesday. Moody’s came out with a positive statement last week which eased the risk of a ratings downgrade, and all eyes will be on a possible cabinet reshuffle.
Russia could also be in line for an upgrade from Standard & Poor’s on Friday. S&P rates Russia BB+ with a positive outlook. An upgrade would be a “big deal” according to one EM buyside corporate analyst who said that the ensuing inclusion in the investment grade indices could lead to tighter spreads and $2bn of inflows.
Lat Am bond market participants say that the long weekend that US markets had enjoyed this week appeared to be extending into Tuesday as an eerie calm hung over the region's markets.
After the busiest January in record in Lat Am primary markets, there are few signs of worry. A good part of the slowdown in issuance is due to third quarter earnings numbers going stale for corporates, and Lat Am companies tend to be slower than their US counterparts when it comes to financials.
Sell-side bankers have been quick to shrug off recent volatility, highlighting that spreads have hardly widened despite movements in equity markets, while investors seem to be taking a wait-and-see approach before diving back in. In any case, with elections in Mexico, Colombia and Brazil coming up, many borrowers have been frontloading their issuance plans, so few seem to expect new issue markets — when they do reopen — to be as busy as the start of the year.
Francesca Young, emerging markets editor, +44 (0)20 7779 7317
Virginia Furness, emerging markets deputy editor, +44 (0)20 7779 8299
Olly West, Latin America reporter, oliver.west@globalcapital.com
Bianca Boorer, emerging markets loans reporter, +44 (0)20 7779 8423
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