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The show should still be on the road

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By Francesca Young
25 Feb 2020

The emerging markets bond business, like much of the rest of the primary markets, hit a stumbling block this week due to the spread of the Covid-19 coronavirus. But even if no deals print, delaying the marketing of deals does not make sense. Roadshows should be rolling on — as Belarus is doing — even if deal printing pauses.

It’s been a tumultuous week so far for CEEMEA bonds. Spreads on Turkish financial institutions are wider 30bp-40bp, and even Russia has widened 10bp-15bp, according to a syndicate official in London. Turkey is 100bp wider than its mid-January Low and Oman has widened 50bp-75bp wider in just the last 10 days or so. It isn’t pretty, and it’s understandable that issuers are holding fire on selling bonds this week, but there is no reason the roadshowing of dollar and euro EM bonds should have stopped.

As always, there are only three ways market sentiment can go from this point: up, down or sideways. Many market participants seem to expect that the Covid-19 fears that prompted the global sell-off in credit and equities to dissipate with time. But if they don’t, bond trading may remain at these slightly elevated levels and borrowers will have to get used to a new, wider, norm. Given how low yields are historically speaking, that is hardly a terrible outcome for costs of funding.

Or, it all hits the fan and the sell-off turns into a rout. Whatever way it turns out, if you want or need to fund, you will have to sell that bond at some point, so you’re going to have to market it.

Bankers have in the past been wary of roadshowing bonds that are not printed immediately after the investor meetings end. That kind of spacing offers critics opportunity to wonder aloud whether there was simply not enough demand. It allows doubt to creep into investors' minds.

But these are not normal times. Marketing a deal and waiting for the right window to sell is a sensible way to proceed. And, in this environment, it is difficult to argue that a pause between marketing and printing is a sign of failure — especially if it is made clear to investors that this is the plan from the outset.

Many corporates and banks are in blackout periods at the moment and cannot go ahead with investor meetings. But those that can should. It has been so busy in the primary markets this year, that it is a rare week when an issuer can command investors’ full attention.

Plus, if the Covid-19 epidemic gets worse, who will want to go on a global roadshow then? Will they even be allowed to?

It is a better idea to travel now and put in the miles, so that if things grow worse, you can at least fall back on the work you did with investors in better times.

By Francesca Young
25 Feb 2020