Emerging-market companies are increasing bond sales this year at the fastest pace in more than a decade while U.S. and European corporate borrowing slumps as investors shift to debt from the fastest-growing economies.
Companies from America Movil SAB, Latin America’s largest wireless carrier, to Citic Bank International Ltd., a unit of China’s biggest investment firm, raised $79 billion from international bond sales in the past six months, a 146 percent increase from a year earlier, according to data compiled by Bloomberg. In the U.S., corporate bond sales sank 29 percent in the first half from a year ago and European issuance retreated 33 percent, making the worldwide total the lowest since 2004.
Emerging-market companies are taking advantage of a push by investors into economies the International Monetary Fund expects to expand about four times faster than the developed world. The increased demand and a reluctance to lend to governments amid Europe’s debt crisis drove emerging-market company bond yields below developing-nation sovereign notes for the first time in three years, JPMorgan Chase & Co. indexes show.
“It’s a good moment because the low rates are very good,” Carlos Garcia Moreno, chief financial officer of Mexico City- based America Movil, said in a phone interview. “You have a combination of substantially bigger growth today in emerging markets than in developed markets, and the appetite to take on debt in those emerging markets is very different.”
The company, which took over holding group Carso Global Telecom SAB and land-line phone carrier Telmex Internacional SAB last month in a $23 billion deal, may look to extend the maturities of the acquired companies’ short-term debt to take advantage of low interest rates, he said.
Russian banks made their biggest foray into international bond markets in two years this week. OAO Sberbank, Russia’s biggest lender, raised $1 billion from the sale of five-year bonds on June 30. Vnesheconombank, the government’s development bank, plans to issue the same amount.
More corporate issuance is on the way as a lack of bank lending pushes companies to the bond market, said Jerome Booth, who helps oversee about $33 billion in emerging-market assets at Ashmore Investment Management Ltd. in London.
“Banks aren’t lending and so accessing the bond markets is becoming much more attractive and governments are pushing it,” Booth said.
The average yield on corporate notes in the second quarter slid 24 basis points, or 0.24 percentage point, to 6.36 percent, according to indexes compiled by JPMorgan. That compares with an average government yield that declined nine to 6.38 percent.
Concern the global economic recovery is slowing drove emerging corporate bond yields up 42 basis points from a second- quarter low of 6.07 percent on May 5, to 6.49 percent yesterday.
Emerging-market companies are increasing their share of global debt issuance as developing nation economies expand 5.1 percent in 2010, compared with 1.3 percent growth in the industrialized world, according to the IMF.
China, whose economy is growing at annual rate of 11.9 percent, has a budget roughly in balance, while the U.S., the U.K and Spain have deficits equal to about 10 percent of gross domestic product, according to Bloomberg data.
“These corporates are operating typically in rapidly growing economies and they are now a bit more sophisticated and are in a position to look at diversifying their capital structures -- and debt and capital markets are part of it,” said Slim Feriani, chief executive officer at London-based Advance Emerging Capital Limited, which oversees more than $600 million in funds in emerging and frontier markets.
Funds investing in developing country debt received net inflows of $17 billion in the first half of the year, the most on record and up from a net $4.5 billion outflow in the January to June period of 2009.
CEZ AS, the largest Czech power producer, raised 500 million euros ($626 million) on June 23 in a bond sale that received 2.5 times that amount in orders, said Jan Brozik, the company’s director of financing in Prague. The bonds were priced to yield 198.4 basis points more than the benchmark German bunds. The company sold 750 million euros of 15-year debt on April 8 at 180 basis points over bunds, Bloomberg data show.
“We managed to fill the book in just three hours,” said Brozik. “Investors have started to regard us as a standard European utility that happens to be incorporated in the Czech Republic.”
The average yield on bonds issued by emerging-market companies is still about double that for peers in western Europe, according to data compiled by Bloomberg. The extra yield investors demand to own emerging-market corporate bonds instead of U.S. Treasuries rose 70 basis points to 360 in the second quarter.
America Movil, the company controlled by billionaire Carlos Slim, raised $3.1 billion issuing bonds in euros and pounds on June 17. The company’s 3.75 percent notes due in 2017 yield 3.72 percent, 44 basis points more than similar-maturity securities issued by Vodafone Plc, the world’s largest mobile-phone company, according to data compiled by Bloomberg.
America Movil is rated A2 by Moody’s Investors Service, the sixth-highest investment grade and two levels above Mexico’s Baa1 rating.
Emerging-market companies are being encouraged by local authorities to tap international bond markets to improve corporate standards, Feriani said. The China Securities Regulatory Commission has urged Chinese companies to issue more bonds, partly in order to reduce their reliance on bank financing.
Hong Kong-based Citic raised $500 million from an issue of 6.875 percent 10-year bonds on June 21.
“Having to go to the bond market means you’re competing with other issuers in a more transparent market and investors in the bond market have choice,” said Chris Palmer, who manages $5 billion of assets at Gartmore Investment Management Ltd. in London. “When it comes to high yield and higher-yielding and emerging-market debt, they have a world of choice.”