If you are an emerging market funding official, one of the most important decisions you have to make right now is whether to print bonds now or wait until after the summer, risking further yield rises in the meantime. Amid the market stability of the last couple of weeks, deciding to go ahead now has looked like a no-brainer. But despite it being widely accepted that EM yields have only one way to go — skywards — over the next few months and years, many treasurers are dragging their feet.
In the last fortnight some EM issuers have returned, but there has been no flood. The reason seems quite ridiculous: bankers promised funding officials certain yields a few weeks ago and those funding officials promised their CEOs or CFOs that same cost of debt. Now that the market has sold off, banks find themselves explaining in daily update calls why those yields are no longer achievable. Many funding officials have yet to find the bottle to pass that on to their bosses and risk their wrath.
But even if fears of QE tapering are dampened, it seems highly improbable that there will be a buying spree over the summer of the sort that would bring yields down to where they were three months ago. Funding officials have accepted that. But they still hope that other events may transpire that will allow them to break the bad news without their negotiating skills being called into question quite so much.
In Russia, for example, that hoped-for trigger is the long-awaited deal from the sovereign. If, as an issuer, you are benchmarked against the sovereign and it ends up having to pay a hefty new issue premium, telling your CEO about your own higher costs is a bit easier. After all, the spread to the sovereign is unchanged, so all good, right?
It's not a risk-free approach, though. Not only is there the small matter of the sovereign taking $7bn out of the market, but investors will find themselves being asked to consider a raft of similarly opportunistic borrowers breaking cover.
Others are simply hoping that as time goes by, even as rates creep upwards, it will look more palatable to their boards to issue at a substantially higher level than they did in trades earlier in 2013. Pavel Aananienko, Sibur’s treasury director, made exactly this point on EuroWeek’s Russian corporates roundtable in June.
Waiting may save face internally. And it could avoid those public accusations of pricing cheap that issuers such as Bahrain and Eskom have faced over the last week. But it is not necessarily what is best for a business that could fund at a better level now than in three months' time.