Flood of emerging Eurobonds

February 17, 2012

The floodgates have opened for emerging market sovereign Eurobond issuers, who have been scrambling to take advantage of the new warm feeling towards riskier assets.

Latest to woo investors is Nigeria, which is on a two-day roadshow finishing today in Zurich, according to Thomson Reuters news and information service IFR.

Nigerian finance minister Ngozi Okonjo-Iweala said her country was unlikely to issue a bond this year, a view echoed by one fund manager who attended yesterday’s roadshow in London.

But that could change if the circumstances look favourable, and most fund managers say “non-deal” roadshows always result in a deal eventually.

Nigeria’s debut dollar bond issued last year is trading well above its issue price, while elsewhere in Africa, Zambia is seeking bookrunners for a debut $500-$700 million bond — that bond idea was first mooted before the 08/09 financial crisis.

Delving further into frontier markets, the fledgling nation of South Sudan said today it was trying to borrow on international debt markets, using oil as a guarantee.

Who else is out there? Well, the Czech Republic was on a roadshow in the past few days, and Latvia issued a $1 billion bond this week. That adds to the $20-billion plus in sovereign emerging Eurobonds issued so far in 2012 by Asian, Latam and emerging European borrowers.

It’s all a surprise for analysts who had thought that all risky debt might prove toxic this year.

“Many investors were scared about a possible shutdown in EM capital markets,” says Luis Costa, emerging markets strategist at Citi, adding that a juicy premium offered to investors on most of these deals has helped.

But some emerging sovereign borrowers will continue to find it harder to issue, particularly if they are not operating within an IMF framework. According to Costa:

The problem is for countries like Ukraine and Hungary, which still have sizeable FX borrowing needs.

Ukraine has said it planned a Eurobond in March, but this week said it did not want to borrow at rates higher than 9 percent — a tricky proposition when existing Ukrainian bonds have yields as high as 10.6 percent.

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