Those issuers — typically sovereigns — which have in the past insisted on banks working for nothing to print their deals do so because they believe they’re getting a great deal. Who doesn’t love free stuff?
In the emerging markets, you often get to crow to your taxpayers about these international banks busting a gut to print your bond in return for nothing, in some cases even at a loss, as they absorb roadshow costs.
It seem like the bargain of the century, it's politically palatable, and all it requires is a little stamping of the feet and a promise of more business to come from your country later down the line.
Banks, over the years, for their part have lined up to disagree. Most banks argue that you pay peanuts and you get monkeys, albeit very nicely suited ones. They have been at pains over the years to emphasise to this publication and others that paying nothing gets you sub-standard service. Salespeople can’t be bothered to get out of bed to push your bond, and as a client, you become less of a priority for the bank.
The bond execution suffers, even with perfectly reputable banks on board, and the price issuers pay for the bond goes up. The banks which say paying zero fees is a bad idea are adamant — always off the record so as not to anger the borrower or seem as though they would ever give less than their best — that at the final tally in this scenario the issuer saves no money and the banks make no money.
But their trouble has been getting anyone to believe this. Can anyone really fathom a situation where a highly reputable bank with highly professional staff would give less than their all for a big name borrower? Or that the bonds of a big name borrower really need the influence of a bank’s sales army to fly? This argument seems tailor-made to fool gullible inexperienced issuers into paying more that they absolutely need to.
But Uzbekistan, which is planning a five or 10 year bond of over $500m this quarter, should give stingy issuers in the future some cause for pause.
It has unofficially mandated banks and is understood to be paying “a fair price” for its bonds, no doubt with all the above in mind.
There is something special about Uzbekistan though, that makes it not just another issuer hoping for the best but an authority on whether this is the right thing to do — the new head of its debt management office, Odilbek Isakov.
Isakov spent several years working as a well-regarded CEEMEA DCM official in London at HSBC before moving back to Tashkent last year to take up his new job.
He will be the one that has made the decision of how much to pay banks. He knows that he could probably push to zero, but having worked on the sell side for so long, and seen the consequences, has decided not to — better to have the full attention of the banks he's hired, and pay appropriately to do so.
It's not even a favour to his former colleagues — JP Morgan, Citi and Deutsche are the three entrusted with the deal.
Other CEEMEA issuers faced with similar decisions in the future would do well to remember what Uzbekistan has chosen to do.