CEE Bonds

Turkey led a string of CEEMEA issuers this week that brought well received bond deals to market despite evidence that the situation in emerging markets bares an alarming similarity to that in 1998 which sparked a full-blown crisis in Asia, writes Francesca Young.

Sberbank’s prospective 10 year subordinated bond looks unlikely to emerge this week after the bank finished investor meetings. A packed roadshow schedule means the leads are still collating feedback, and a softer market tone and an upcoming US holiday means Tuesday could be the next potential launch date.

The Republic of Turkey’s $1.5bn 6.625% 31 year bond, printed only a fortnight after the country’s fiscal problems were blamed in large part for dragging CEEMEA into turmoil, crossed the finish line with an awe-inspiring $6.25bn book. The huge success of the deal, which lead managers said was printed with only a 10bp new issue premium, prompted a rally across CEEMEA on Wednesday as it became clear that fears over Turkey’s capital markets access have been overblown.

Slovenia’s recent $3.5bn bond has repriced the borrower’s bond curve tighter by as much as 25bp, according to bankers on and off the blow-out deal. Although some of the borrower’s dollar paper has not recovered all the ground lost in the latest emerging market sell-off, the fact that the Slovenia’s euro paper has been pulled tighter made it clear the performance qualified as a repricing rather than a recovery, said bankers on the bond.

Gazprom has picked banks for a euro transaction and begins a roadshow on Monday. The basis swap from euros into dollars has become steadily less favourable for borrowers, though it is not clear whether Gazprom will swap the proceeds or not. But strategy savvy borrowers still have ample reasons to build out euro curves, said debt bankers.

Sberbank is targeting a 10 year non-call five deal or a 10 year bullet note for its subordinated bond, but would prefer the former, according to a source close to the deal. The note is expected to be priced later this week, with Sberbank’s roadshow finishing on Wednesday.

The Swiss market is set to enjoy a burst of issuance from Antipodean issuers, with ANZ New Zealand due to price a new six year on Wednesday afternoon and Australian retail bank Bendigo and Adelaide Bank arranging investor meetings for next week.

Slovenia offered a sign of just how much pent up demand is present in the CEEMEA bond market, building an orderbook of over $16bn for its dual tranche deal on Monday. The notes were trading 15bp-20bp tighter on Tuesday morning, despite being priced flat to inside the sovereign’s secondary curve. This left debt bankers on the bond in no doubt that the reception and performance was down to a lack of dollar issuance rather than a juicy spread.

The Republic of Slovenia gave the CEEMEA market just what it needed on Monday, following a bare week for bond supply. The borrower opened books on a dual tranche dollar transaction with an attractive starting spread. And in an EM market riven with credit concerns, a successful deal from a solid sovereign will demonstrate that investor appetite for the right name remains untouched by worries in the wider market, said bankers on the deal.

Nostrum Oil and Gas, formerly Zhaikmunai, has released initial price thoughts of 6.5% yield area for its five year non-call three bond. The Kazakhstan based oil and gas company has set a target of $400m for the deal, but the size is not capped.

Total EM volumes are only marginally down on last year to date, at $71.3bn, despite secondary trading levels having been rocked by an emerging markets sell off over the last fortnight. The total volume of new EM paper sold is only $36bn lower than at this point in 2013, according to Dealogic data.

Sukuk’s advantageous pricing for borrowers over conventional bonds in recent years has evaporated in the Gulf – leaving only disadvantageous structuring costs in the Islamic market – but it does not follow that sukuk volumes are going to disappear too. Far from changing tack to bonds, for those who can issue both the rationale to favour sukuk is stronger than ever.