CEE Bonds

While much of the CEEMEA market is focused on how the Ukraine crisis is affecting secondary spreads, debt bankers are warning that the real threat to bond supply this year will come from slow growth, not short term spread volatility. Anaemic economic growth across key emerging markets jurisdictions has far graver implications for CEEMEA issuance, and could prompt investment banks to rethink their strategies towards the asset class.

New Zealand lender Kiwibank will price its debut senior unsecured Swiss franc deal on Thursday afternoon, a five year trade that saw strong demand in spite of a volatile week in the currency.

Russian spreads have clawed back some of the ground lost during the recent sell-off, but the recovery lost steam on Wednesday and secondary levels are still well wide of where they were last week. This has not ruled out issuance from elsewhere in CEEMEA however, said debt bankers.

Tinkoff Credit Systems (TCS) may be set up to issue its next Eurobond, but the bank has not made a decision yet whether to go ahead with a subordinated debt issue in the first half of this year.

Some stability has returned to the CEEMEA market, although not enough to coax borrowers into executing deals. Russia spreads are still well wide of where they were less than a week ago, despite regaining lost ground on Tuesday. But the market is still open for issuers in other countries, and those in regions like the Middle East have no reason to hold off.

Sovereign, supranational and agency issuers are looking to grab their chance to bring benchmarks after some easing in tension between Russia and Ukraine. With investors nervy about Eastern Europe, there should be plenty of demand for SSAs.

Sergei Glazyev, the Kremlin hawk and adviser to Russian president Vladimir Putin, on Tuesday morning threatened that if US economic sanctions are imposed, Russian banks will not pay their debts in an attempt to cripple the US financial system.

The focus on Ukraine has moved from the macroeconomic to military sphere. But it is worth remembering that even if full scale conflict with Russia is averted, Ukraine’s economy is in an appalling state, and the bond market helped it end up there.

Russian Railways’ lead managers last week claimed waiting a month for a favourable fall in rates before executing resulted in the lowest yield the company could have achieved on its €500m nine year bond. But that contradicts what bankers have often recommended as prudent bond market behaviour. Others should be cautious of following its example.

Promsyvazbank (PSB) postponed its tier two dollar bond on Monday because of growing tension between Russian and Ukraine, but the borrower has every intention of returning to market once conditions improve. The Republic of Azerbaijan, meanwhile, has pushed on with investor meetings. Although it will likely face higher spreads for its inaugural dollar sale unless the situation is resolved soon.

Turkey’s Finansbank has received little interest so far for private placements from the $1.5bn EMTN programme it set up on February 7. The lack of demand is common for a number of Turkish banks.

Russia’s sovereign bond and CDS spreads were hammered on Monday following heightened fears about the possibility of conflict with Ukraine. The rouble touched new lows before an unorthodox central bank rate hike, and the volatility will make life difficult for Russian borrowers with bond plans, said emerging market debt bankers.