Borrowers from China to Mexico and Kenya are selling bonds abroad at an unprecedented pace, filling a $20 billion void left by issuers in Russia shut out of international capital markets since the beginning of March.
Mexican corporate and sovereign issuance has more than doubled to $24 billion and sales out of China jumped 42 percent to $43 billion, according to data compiled by Bloomberg. Kenya entered the market this week with the largest-ever debut transaction from a speculative-grade government, raising $2 billion. While Russians were among the biggest borrowers in emerging markets last year, offerings in dollars and European currencies have tumbled 74 percent to $7 billion in 2014.
With investors abandoning Russia after its incursion into Ukraine prompted sanctions from the U.S. and its allies, demand for assets elsewhere in emerging markets soared as European Central Bank stimulus and plunging global bond yields drove fund managers further afield to boost returns. Bond sales from developing-nation governments and companies have risen to $262 billion so far this year, topping the record $236 billion in the first six months of 2013, data compiled by Bloomberg show.
“If there’s not as much supply from one region, that increases the capacity of the buy side to absorb more issuance elsewhere,” Peter Lannigan, managing director at broker-dealer CRT Capital Group LLC, said in a telephone interview from Stamford, Connecticut.
Issuers from China National Offshore Oil Corp. to Petroleos Mexicanos and Emirates Telecommunications Corp. have been among those taking advantage, capitalizing on emerging-market corporate spreads that plunged to as little as 2.75 percentage points this month, the lowest since 2007, JPMorgan Chase & Co. index data show.
“China hasn’t historically been a big issuer in the dollar market, but what you’re seeing over the last couple years is, with tighter liquidity onshore, more companies are looking to access the offshore market,” Shamaila Khan, a money manager at AllianceBernstein LP, which oversees $466 billion, said by phone from New York. Demand for Mexican bonds has been fueled by optimism for economic growth, she said.
Mexico’s government has sold $8.4 billion abroad this year, helping pace a 65 percent increase in sovereign issuance to $70 billion, data compiled by Bloomberg show. Ecuador, banished from international capital markets since defaulting on obligations in 2008 and 2009, sold $2 billion of bonds paying 7.95 percent June 17, a day after Kenya’s debut.
The U.S. and the European Union imposed sanctions on people and companies close to President Vladimir Putin after Russia annexed the Black Sea Crimea peninsula in March. Ukraine has accused Russia of supplying weapons, military vehicles and mercenaries to separatists, which Russia denies. The two nations are also in conflict over gas, with Russia cutting off supplies this week because of unpaid bills.
U.S. Vice President Joe Biden said Putin’s government faces the threat of further economic sanctions if it doesn’t do more “to exercise its influence among the separatists to lay down their weapons and renounce violence, both of which Russia has thus far failed to do,” according to a statement released by the White House yesterday.
OAO Alfa Bank earlier this month sold Russia’s first Eurobond since March. The yield on the notes has fallen 74 basis points since they were sold on June 4 to 4.76 percent. OAO Sberbank and OAO Gazprombank will begin gauging appetite for Russian assets with fixed-income investor meetings beginning as soon as today, and may follow with euro-denominated offerings, according to people familiar with the plans.
Sberbank hired Barclays Plc, BNP Paribas SA, Deutsche Bank AG and Sberbank CIB to arrange a series of bondholder meetings in Europe today and tomorrow, said a person with knowledge of the offering, who asked not to be identified because they weren’t authorized to speak publicly on the matter.
“For Russian companies to come back in the dollar market, you’re going to have to see more stability on the ground, or some kind of resolution,” said Khan at AllianceBernstein. “It’s either that, or the companies in the country will have to pay really significant premiums.”