Alexandre Schwartsman, Brazil
In 2002 Brazil was essentially shut out of the international markets for months on the fear that left-wing candidate Luis Ignasio Lula da Silva would become president.
Investors are now so impressed by the fundamental improvements of the country under President Lula that the sovereign was able to return to the euro markets last month for the first time in more than two years.
Its E750 million, eight-year offering, led by Dresdner Kleinwort Wasserstein and UBS, was increased from E500 million and priced 5bp inside talk to yield 8.7%. It attracted over E2 billion in orders from a staggering 250 accounts ? more than even Pemex attracted with its euro deal earlier in the year.
The deal demonstrates the dramatic turnaround in the fortunes of Brazil in the last two years. The last time it issued euros was in March 2002. Then it had to offer a whopping 11.5% coupon on its April 2009 eurobonds just to get E500 million done.
More importantly, the deal has shown Alexandre Schwartsman, Brazil's central bank director of international affairs, that the sovereign is no longer solely reliant on the US market for its external needs.
?It was important for us to go back to the euro market after some time,? says Schwartsman. ?It is important to know there is an alternative investor base willing to take Brazilian credit. It helps us to diversify the investor base and put less stress on the dollar market. I think from now on the euro market should have more importance for Brazil.?
Brazil has been dependent on US markets for all of its external needs since March 2002. Its steadily improving economic fundamentals, low interest rates and its largely successful efforts to ensure well-performing deals has kept US investors as regular consumers of its debt.
?Our intention is to try as much as possible to ensure our deals work well, because we know this is not a single shot game,? says Schwartsman. ?We are trying to build a long-term relationship with the investor base, so we need to make sure that both of our interests are taken into account.?
Regaining access to the euro market is much needed nonetheless. It took meticulous timing, sizing and pricing of its dollar deals this year to raise $3 billion in the US market.
Brazil should have an even better year in 2005. Moody's has finally returned Brazil to its pre-2002 crisis rating of B1.
It's expected to issue around $4 billion to $5 billion in 2005, and this time will be able to spread it over two markets rather than one.
Eric Recto,
Philippines
President Gloria Arroyo caused something of a stir in August by announcing that the country's fiscal problems were such that they could lead the country into default. Not that there was anything new about the fiscal crisis ? as shown by the fact that international investors did not react. Bond spreads remained at exactly the same wide levels as ever.
And two weeks after Arroyo's clarion call, the Republic of the Philippines was back in the market, reopening two 15- and 25-year bonds to raise $1 billion.
The taps paid fat discounts on the trading levels of its existing bonds when they were announced. But they allowed the Philippines to wrap up its funding target for the year in one strike.
Beggars cannot be choosers, Philippines financing officials seem to accept. ?I could be happier but accept that we have quite a bit to prove before we can go pushing harder to decrease our spreads,? says Eric Recto, under-secretary of finance of the Republic of the Philippines. ?As we are able to show progress with respect to achieving the targets we set out, then the situation will improve.?
Arroyo's call was widely seen as an attempt to railroad a tough new reforms package through an obstructive lobby-interest-led parliament. ?It was not an unhelpful statement in terms of driving home the point that it was going to require substantial effort on everybody's part,? says Recto.
Improving tax revenue collection is the most important thing that needs to be done; another key issue is reforming the disastrous energy sector. Some $750 million of the proceeds borrowed in the latest bond issue is going to stave off the haemorrhaging at state-owned power utility Napocor. Getting its finances in order will, it is hoped, make it look more presentable for potential investors when the government is ready to sell it off. The first step is to raise electricity prices.
The Republic has borrowed $3.3 billion plus E350 million this year and next year is looking at $3 billion to $3.1 billion, says Recto. ?We are about done for the year, and the only possibility of us coming back into the market would be if we could fund for next,? he says.
?Our strategic objectives are two-fold: to stretch out our maturities as much as possible and to decrease our spreads,? he says. ?Right now the ability to do both things is not an easy task.?
Only once the government has made progress on a number of targets, he says, will it be able to enjoy the luxury of further objectives, such as diversifying its funding source.
Memduh Aslan Akcay,
Turkey
Fingers crossed, things are looking up for Turkey.
It hopes that the EU summit being held in Rotterdam in December will approve its application for joining the top table. And that date with destiny is driving the government's reform process ? as well as the issuance and secondary market performance of its bonds.
It still has some fund- raising to go if it is to hit its target of $5 billion this year. But last month it raised E600 million from a five-year bond issue, following on from a $750 million fundraising in June.
Together these deals have broken the back of the funding requirement that looked dangerously steep earlier in the summer. At that time Turkey had not issued since January, and its bonds were widening alarmingly in line with emerging markets in general, and disappointment about the failure of the Cyprus agreement in particular.
?We have already raised over $4.2 billion out of a $5 billion target this year, and therefore have a modest funding requirement for the rest of the year,? says Memduh Aslan Akcay, acting director-general of foreign economic relations at the Turkish Treasury in Ankara.
He adds: ?The yield of the last euro deal was one of the lowest that we have achieved in our eurobond issues so far.? Offering a record low coupon of 5.5% on an issue price of 98.94, the E600 million issue in September was launched at a spread of 238bp over the Bobl.
?Being a seasoned borrower, we aim to issue liquid benchmark transactions, which perform well in the secondary market,? says the Treasury official.
?One of the main factors affecting the market conditions this year was the expectation of rising US interest rates. Because of the US Treasury volatility all emerging markets issuers' spreads widened considerably in the secondary market, especially in the second quarter of the year. However, our bonds performed relatively better. Also, as the markets stabilized since June, we issued two bonds in the dollar and euro markets respectively.?
Turkey started the year in blazing fashion, issuing a $1.5 billion, 30-year bond followed by a E10 billion, 10-year offering. Both supported one of the Treasury's main objectives ? to lengthen the maturity of Turkey's extensive short-term debt.
That will be a core component of its debt strategy going forwards. First, though, the government was due to open talks with the IMF in late September about a new standby arrangement ? though this is not a fully-fledged programme imposed from outside, officials stress.