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Analysis: Emerging borrowers braving market after crunch

Emerging market sovereign and quasi-sovereign borrowers are returning en masse to international markets with a swathe of new bond sales in another sign the worst of the global credit crunch may be easing.

There are signs investors may be becoming more discriminating to the detriment of perceived riskier borrowers yet more respected sovereign names are seeing little problem finding buyers for debt. Indonesia sold $2.2 billion in debt from three existing bond sales on Tuesday, a deal increased from $1.5 billion after it was three times oversubscribed.

Last week saw Poland mandating banks for a €2 billion ($3 billion) 10-year bond and also Kazakh state oil and gas firm KazMunaigas prepping for a benchmark bond and medium-term note program. Romania last week issued its first Eurobond in five years, while one of the banks arranging the deal said Russia’s Gazprombank would be launching a benchmark dollar bond.

Earlier this month, Hungary and the Czech Republic raised a combined €3.5 billion via two benchmark bonds. “Credit is becoming more available but there has been a repricing,” said Deutsche Bank managing director for emerging markets strategy Marc Balston. “Investor appetite is definitely there.”

Respected emerging borrowers, such as the Czech Republic are seeing spreads only 10 to 30 basis points wider than before the credit crunch a year ago -- but more speculative names particularly in the emerging corporate sector could be looking at 100 basis points or more.

Outside of Europe, Kenya has said it would push ahead with a Eurobond that was delayed following electoral violence earlier this year, while ratings agency Fitch said Uganda was also eyeing its first issue. “There are others out there looking at the market,” said a manager on the emerging sovereign desk of a major western bank, declining to be named.

 
“NEW EQUILIBRIUM”

“If you compare it to the situation of a year ago is very different but people have got used to it.” Both Ukraine and Egypt had already mandated banks and were likely in due course, she said, adding that Azerbaijan was seen as a possible along with Slovakia and potentially, Lebanon and Latvia. Some also see Turkey issuing before the year end. The Reuters Asian diary of upcoming Eurobond issues also shows a stream of Asian corporates coming to market, from Korean banks to an Indonesian timber firm PT Barito Pacific Tbk. But market conditions are not good for everyone. Trade and Development Bank of Mongolia became the second “junk” rated issuer to postpone an offering after Indonesia’s Truba Alam Manunggal Engineering pulled a $150 million sale of three-year bonds.

But amongst quasi-sovereigns -- firms such as Russian energy companies seen almost indissolubly tied to the state -- and national sovereigns, confidence and clarity is returning. The first signs of life in the market came at the beginning of April with the Russian gas giant Gazprom selling a $1.5 billion two-tranche bond, but traders say it was last week’s €2-billion Czech deal -- the first from the region since last year -- that really demonstrated recovery. That was followed by Hungary’s 10-year bond issue, which at €1.5 billion, was more than initially expected.

The Czech deal was priced at 25 basis points over mid-swaps, the tighter end of guidance and the deal was twice the original finance ministry intention to raise around one billion. “When the Czech Republic did their deal, that gave some clarity on pricing and so issuers have come to market. This is the new equilibrium and people have become comfortable with it,” said the manager. (Reuters)