In past years, emerging market new issues have been a barometer for increasing nervousness in the wider capital markets. With the assumption that this asset class would be one of the hardest hit in the event of US rate rises, the rule of thumb was that, as long as EM syndicates were churning out bonds, all was well in the in the capital markets kingdom, investor confidence was high and few bumps lay ahead.
But this year it is different. Those deals are still coming — three CEEMEA issuers rolled out roadshows straight after the Easter break this week, despite US equities taking a tumble over US-China trade war jitters — but the pipeline is now driven by fear, not confidence. One borrower, Qatar’s Mannai Corporation, chose to hit the road without waiting for the sovereign to print and reset the pricing benchmark for the country.
Issuers see no end to the volatility, no imminent rally and have no confidence that there will be a better time to print down the line, say bankers. These issuers are printing bond after bond with a high concession to secondaries. Each time, these bonds struggle to hold in at reoffer and the whole market is hit as a result.
The next borrower lines up to pay another high new issue premium before, finally, those issuers that were sat on the sidelines decide to jump in, mutilating their own curves in the process before the rest of the market does it for them.
The deals in the market now have not come about because this is a good time to print. They are there because it may well be a whole lot worse to wait.