The anticipated surge in CIS sovereign bond supply has failed to materialise, despite the success of Georgia’s debut Eurobond last month, as inflation and credit ratings downgrades begin to bite.
Georgia’s bond issue last month affirmed the enduring appeal of scarce sovereign borrowers, even amid volatile markets. The B+BB- rated sovereign’s $500 million bond issue attracted $1.6 billion of orders and was priced at 398bp over mid-swaps.
But hopes the deal’s success would spur other issuers to follow suit have fallen flat.
Belarus’ prime minister Sergei Sidorsky announced last Wednesday that the Republic would not go ahead with plans to issue its debut Eurobond, blaming unfavourable market conditions and dissatisfaction with the country’s low ratings.
Local media reported that Belarus had plans to raise up to Y30 billion of three-year bonds and had mandated Nomura to lead a debut issue.
Standard & Poor’s gave Belarus a B+ issuer default rating in its first assessment of the sovereign last August. Moody’s followed a day later with a B1 rating.
“The B1 foreign and local currency government bond ratings reflect the economy’s relatively high vulnerability to external shocks: as the economy opens up, the trade balance and current account have been deteriorating, leading to a shortage of foreign currency reserves,” was Moody’s latest assessment in a December credit report on Belarus, affirming a stable outlook on the credit.
But while Belarus is waiting on better ratings, the country’s former Soviet neighbours’ credit standings have been getting worse. On Wednesday Fitch Ratings revised the outlook on its BB- rating for Ukraine from “positive” to “stable.” Earlier this month, S&P lowered Kazakhstan’s long-term credit ratings outlook to negative from stable to negative just six months after it downgraded the sovereign BBB.
The Republic of Azerbaijan, which last year mandated Citigroup and Deutsche Bank to lead its first foray into the international capital markets, will not now issue a deal this year, market observers say. Azerbaijan will hold presidential elections in the second half of the year – this, and the fact the country has more than $5.5 billion of foreign reserves, with the figure expected to rise above $7 billion in 2009 – has made the prospect of raising costly debt in the international markets an unpopular one.
Azerbaijan, rated Ba1/BB+ (Fitch) will not bring its planned Eurobond issue this year.
Elsewhere, the A2/BBB-/BBB rated Development Bank of Kazakhstan is contemplating a major multi-currency borrowing programme, it was rumoured this week, in an issuance programme encompassing Samurai, Australian dollar and sukuk issues. However, origination bankers dismissed the suggestions as “talk without merit.”
“DBK looked into those markets as options, but only as an educational exercise,” said one bond origination banker, who declined to be named. “Each of them, while imaginable, would require higher pricing, provide more complexity and achieve smaller size relative to a US dollar deal.”
Last November, DBK abandoned a benchmark dollar bond, citing unfavourable market conditions.