Policymakers facing a growing chorus of warnings of an imminent emerging markets credit crunch were offered some relief this week after two governments and three-EM based companies raised $5.6bn on the global capital markets.
The combined fundraising by Poland and Ghana and by Turkcell, the mobile phone operator, and Russian duo Norilsk Nickel and Gazprom, was the second largest volume of issuance in a single week so far this year.
It came after leading policymakers and bankers told Emerging Markets that tightening liquidity conditions, an imminent rise in borrowing costs thanks to a hike in US interest rates and the Chinese economic slowdown would put EM financing under extreme pressure.
The warnings came as the Institute for International Finance warned that 2015 would be the first year since 1988 that net emerging market capital flows turned negative.
However, the spate of issuance was greeted with only cautious optimism as bankers were quick to quash the idea that suddenly the whole of emerging central and eastern Europe and the Middle East was open after an appalling September.
“I’m not running round the building saying the market’s on fire,” one said. “I do think you’ll see some fresh roadshow announcements, but the market is going to have to be a bit more realistic in terms of its expectations.”
Although five successful deals might seem like a green light for others, each deal had its own specifics. Norilsk Nickel and Gazprom are the best of Russia’s best and have watched their spreads tighten not widen in recent months — giving them a vastly different perspective on pricing compared to most equivalent credits.
African sovereign spreads have been hit worst of all by falling commodity prices, the implications of higher US rates and a weakening Chinese economy. Ghana is the second highest yielding of the Africa sovereigns, but its success was down largely to the World Bank’s International Development Association, which guaranteed 40% of the deal.
However, in the Middle East liquidity concerns are growing. The last attempted deal was an Abu Dhabi Commercial Bank six year note that was pulled mid-way through execution last month.
Since then the market has had to contend with the reports that Saudi Arabia’s Monetary Agency had $50bn-$70bn of withdrawals from fund managers in the last six months.
In an interview with Emerging Markets World Bank CFO Bertrand Badré said he did not believe the emerging world was in the grip of a credit crunch.
“The truth is China is adjusting its model, we don’t know when the US will raise interest rates but they will, and commodity prices are also stabilising,” he said.
“All this was expected and we all know this would have an end but it is difficult that they all happen at the same moment. We all agree it is positive in the medium term but the transition is scary.”