Last week Turkey’s Halkbank printed its $500m six year bond at a 2bp-3bp new issue premium, while National Bank of Abu Dhabi and Slovakian Eustream priced their $750m and €500m deals flat or through their curves, depending on the estimate taken of outstanding trading levels. It may be tempting to look at these results and conclude that the CEEMEA bond market is red hot at the moment, but that would be wrong. It is simply that these issuers ticked all the right boxes to entice investors and pull down the concession — stable geographies areas, investment grade ratings and already low spreads.
To prove the point, South African Eskom last week also printed a $1.25bn 10 year bond, and that troubled company paid up 40bp for the privilege of raising new funding in. Granted, it was a larger size, but a 40bp concession is still substantially more generous.
What the low new issue premiums therefore show is that investors are starved of the kind of paper that they want to buy and are pouncing on it when it comes along.
Syndicate officials have always found it easier to squeeze pricing tighter when there is an element of scarcity to a deal — whether the issuer is not a regular bond market borrower, there is not much paper from a certain country available, or that there are simply few deals offered in the market.
The last year has made investors nervous and there has been a flight to quality, but with the Russian state-owned oil and gas companies and banks out of the picture, there is little quality to buy.
Bankers say that the market is divided into those borrowers that have access and those that do not. The issuers on the right side of that line can do what they want right now — extend their maturity profiles, do exciting new structures and print aggressively. Those that are not are virtually shut out.
Just like the most appalling nightclubs, if you’re well dressed, you’re welcome with no door charge. If you don’t have the right shoes on, you’re not coming in.