When volatility appears new issue premiums rise — across all markets. But not every market reacts the same way. Debt bankers running deals for investment grade corporates in Western Europe might envy the excitement and exoticism of the CEEMEA market. But at least they have clients with a level of bond market experience that prevents endless back-and-forths around pricing. If new issue concessions in developed markets rise, borrowers understand and are prepared to pay if they must issue.
Debt bankers in the CEEMEA market on the other hand, get to price deals from far flung borrowers with unique credit stories. But this often involves more horse trading than Tattersalls, as part of a stream of queries about whether it might be possible to just shave a few more basis points off pricing. Even when a CEEMEA borrower needs a certain size, this often takes a back seat to basis points. Pricing is everything.
This focus on price, aside from prompting face-palms across syndicate desks, also means that in periods of market volatility CEEMEA issuers have a tendency to sit and sulk. The pricing was there, and now it’s gone. Bring it back, they tell their leads.
The Greek crisis inflamed new issue premiums to the point that last week non-emerging market investment grade credits were paying 40bp to get deals done. With CEEMEA supply down over 50% on last year, there was ample demand for fresh paper. But some bankers doubted that CEEMEA borrowers, with their perennial price obsessions, would willing to stomach similar premiums. But they were.
Naspers paid between a 25bp-35bp new issue concession, depending on who you ask, for a $1.2bn 10 year bond. Kazakhstan paid as much as 50bp — again depending on who you ask — in its colossal $4bn dual-trancher. No-one is saying they paid too much. In fact Naspers paid less than borrowers in more developed markets. Although some initial criticism was levelled at Kazakhstan’s starting spread, the borrower was after — and achieved — the largest CEEMEA bond since June 2014.
The CEEMEA market has been growing up for years, which is reflected in its resilience to the approach of rising US rates, and now a healthy dose of realism in the face of heightened premiums.