Financial basis

Capital Markets Weekly: Emerging Markets Supply Successfully Reopens After Initially Averted Russia Default

Emerging Markets

Since the end of last week, the Russian bond spread has more than halved after it reportedly paid a $117 million coupon in dollars, despite an earlier statement that it would only make payments in rubles. Improving market sentiment allowed emerging market supply to pick up: Nigeria made the first African sovereign sale in 2022, and Turkey placed five-year bonds, albeit at well higher than those it had paid in mid-February.

Russia’s EMBI+ spread improved sharply to 2197 bps at the March 17 close, after closing last week (March 11) at 5863 bps against the UST and peaking at 6215 on the 9 March. The sharp improvement reflects media suggestions Russia honored coupon payments in dollars despite an earlier statement that it would only pay in rubles, potentially avoiding triggering technical default events with rating agencies.

Nigeria brought in the first sub-Saharan sovereign supply this year. It sold $1.25 billion in seven-year debt on March 17, attracting $4 billion in peak demand. The issue was initially offered at 8.75% guidance, which was tightened twice to reach the final level of 8.375%: the order book remained strong (at $3.676 billion) despite the tightening, showing price insensitivity. According to the country’s debt management office, the proceeds will “finance critical investment projects…to fill the infrastructure gap” and increase the country’s external reserves.

The deal came on the same day Nigeria’s Debt Management Office announced that the country’s public sector debt had risen to NGN 39.556 trillion (USD 95.779 billion) at the end of 2021 from NGN 32.915 trillion (USD 86.392 billion). one year earlier. Patience Oniha, Director General of the Debt Management Office (DMO), noted that the total outstanding public debt stood at 22.47% of GDP, against Nigeria’s 40% limit.

Nigeria prices show some deterioration in 2022, but on a limited scale, and with recent improvement. As of December 30, 2021, its outstanding issues of 7.875% February 2032 and 7.375% September 2033 closed last year at yields of 8.001% and 7.899%. As of the March 14 close, the latest data point currently reported by the Nigerian DMO, the same issues were trading at 8.739% and 8.627% respectively.

Turkey also sold five-year bonds, with an initial price guidance of 8.875% for the sell. An initial Turkish-language statement from the Turkish Treasury announced that it had sold $2 billion at 8.625%, indicating that the operation had been underwritten three times. He said some 150 accounts participated, with 27% sold in the Middle East, 25% to Turkish investors, 23% and 18% taken by UK and US investors. The sale took place against the backdrop of a recent increase in its inflation rate, which reached 54% in February, and its decision to leave its key rate unchanged despite tightening measures by the US Federal Reserve and the several regional peers. The high proportion sold in Turkey is attributed to demand from Turkish banks.

Although his deal was properly underwritten, his price represents a sharp deterioration in cost levels from the 7.25% he paid in February to raise $3 billion in five-year Islamic debt, which has attracted some $10 billion in demand from over 200 investors. This is further stated in the Treasury statement, which showed that the new funding paid a spread of UST + 645.1 bps, compared to a spread of 524 bps on the mid-swaps in February (while still using a different reference).

In the secondary market, the picture is more encouraging, as Turkey’s EMBI+ index, the average trade margin on its outstanding dollar debt over US Treasuries, closed March 17 at 558 points. basis points, after hitting 695 basis points on March 7, below the 578 basis points it ended 2021 at. initial pricing discussion had represented a significant rally of 80 basis points at inception for an exceptional trade with a six-month shorter maturity.


Emerging borrowers are also preparing for ESG issues.

Panama’s Undersecretary for Finance, Jorge Almengor, said Panama will request the issuance of green bonds by 2022 to fund future liability management exercises.

A March 14 Bloomberg report also claimed that the Philippines had mandated banks to arrange an international dollar-denominated bond, the timing of which would be subject to market conditions: we have seen no official confirmation to date. The report cites sources suggesting that the country could issue up to $7 billion in international markets this year. Finance Secretary Carlos Dominguez previously told Bloomberg TV that he aims for the domestic market to meet 75% of his borrowing needs this year. On February 17, however, it confirmed that a first green bond was planned for this year, with a Reuters report that day suggesting that its next dollar sale could use an ESG format, having pledged to put in place a program last November. .


Although details are yet to be provided, there has been an encouraging development for Chinese companies listed on US markets and those looking to increase market share internationally. Xinhua reported on March 16 that China’s State Council’s Financial Stability and Development Committee reported “good communication” with U.S. regulators and “positive progress” with both sides. who were working on a “concrete cooperation plan”. He further said that the Chinese government “will continue to assist various companies to seek listings in overseas markets.” No other formal details have been provided at this stage.

Our point of view

Overall, developments this week look positive for risk. Without prejudging the evolution of Russian coupon payments, debt markets clearly coped with the Federal Reserve’s key interest rate hike last week without difficulty.

Nigeria’s issuance was the first African sovereign sale this year and proved a resounding success despite unfavorable domestic fiscal trends caused by the cost of energy subsidies, which offset the fiscal windfall from rising oil prices. energy. Turkey’s ability to attract three times as many subscriptions for its deal is also positive, as is the fact that it has now raised a total of $5 billion internationally in 2022 at the sovereign level, but its pricing indicates a deterioration in their credit rating. Further deterioration in the price of new issues could push its borrowing costs to potentially unsustainable levels, which requires close monitoring.

While details are yet to be formulated, China’s announcement appears to represent a relaxation of policy on providing data to meet international – particularly US – disclosure requirements. Sources quoted by the Financial Times have suggested that negotiations with US regulators could allow some Chinese companies to comply with US audit requirements, which was previously prohibited by Article 177 of China’s revised securities law. securities, which prohibited Chinese companies from providing information to foreign regulators without prior authorization from the China Securities Regulatory Commission. In turn, non-compliance with US disclosure requirements had generated US legislation (the Holding Foreign Companies Accountable Act of 2020) and subsequent SEC recommendations to delist companies that failed to comply with US requirements. within three years.

The issue led to the cancellation of planned US and international capital increases, affecting in particular the Chinese technology sector. On March 10, the US SEC listed five companies as candidates for delisting and feared similar issues could affect many more, with the Financial Times suggesting that up to 270 Chinese companies could potentially be delisted. It is too early for us to assess the degree of compromise that will be reached, but the wording of the Chinese statement appears to show some softening from its earlier stance. This represents a positive indicator for companies already listed on US markets and would also appear to increase the likelihood of a future resumption of international equity issuance by major Chinese companies.

Posted on March 23, 2022 by Brian LawsonSenior Economic and Financial Consultant, Country Risk, IHS Markit

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.