Fitch Gives Poland Bond Bulls a Sales Forecast to Cheer

Polish companies are set for a record quarter of bond sales as sliding borrowing costs lead them to diversify from loans, according to Fitch Ratings.

Non-financial companies, including coal producer Kompania Weglowa SA and utility Enea SA, may issue as much as 16 billion zloty ($4.8 billion) of local- and foreign-currency debt in the fourth quarter, three times more than a year earlier, said Miroslaw Dudzinski at Fitch. The yield on JPMorgan Chase & Co.’s index of Polish corporate dollar bonds dropped 40 basis points this year, more than the average for emerging-market peers.

With government bond yields in Poland and the euro-region, the nation’s biggest export market, close to record lows, companies will wean themselves off loans, the traditional source of corporate funding, Dudzinski said. The trend is accelerating as interest rates in Poland are set to fall further.

“It’s going to be a record quarter and a record year,” Dudzinski, the head of corporate business at Fitch in Warsaw, said by phone Oct. 2. “Companies realize how important it is to diversify their funding. Investor demand is also there as funds are looking for yield pick-up.”

Record Year

Polish companies sold a record 2.9 billion euros ($3.6 billion) of bonds abroad this year, while zloty note sales amounted to 12.5 billion zloty in the first eight months of the year. That compares with 1.3 billion euros and 12.7 billion zloty in all of 2013, data from Bloomberg and Fitch show.

Poland’s three biggest coal producers, which all posted losses in the first half of this year, plan to sell bonds on international markets in the fourth quarter as they seek cash amid dropping prices for their output.

Katowicki Holding Weglowy SA plans to sell 500 million euros of bonds, while JSW SA, the European Union’s biggest coking coal producer, wants to issue at least $500 million of securities. Kompania Weglowa SA, which produces a fourth of the EU’s thermal coal, may sell as much as 1 billion euros of debut Eurobonds in November, Chief Executive Officer Miroslaw Taras said in Bloomberg Businessweek Polska interview today.

The coal producers’ bond sales, which are still awaiting ratings, may be facing “nervousness” by high-yield bond investors as the U.S. Federal Reserve prepares to tighten monetary policy, according to BPH TFI SA mutual fund. The Bloomberg high-yield emerging market corporate bond index fell to 151.6 on Oct. 3, lowest since May, after reaching record high of 156.1 in July.

‘More Demanding’

“Sentiment on the high-yield market has recently worsened, making bond sales by coal producers more demanding,” Pawel Golebiewski, who helps manage an equivalent of $774 million at BPH, said by phone Oct. 3. “There might be fewer issues on international markets than planned.”

NFI Empik Media & Fashion SA, Poland’s biggest book and music retailer, suspended its Eurobond offering in August, citing “adverse” markets, the company said in a statement.

Poland’s central bank has kept its main interest rate at a record low of 2.5 percent since July last year and will cut it by 25 basis points this week, according to the median estimate of a Bloomberg survey of 40 analysts.

Polish corporate debt-focused mutual funds have seen net monthly inflows averaging about 300 million zloty between January 2013 and July, with August showing an outflow of 30 million zloty, according to fund tracker Analizy Online SA.

Tauron Polska Energia SA and Enea SA, the country’s second-and fourth-largest power utilities, want to sell bonds on the local market. Tauron targets as much as 1 billion zloty, while Enea may sell 500 million zloty if it completes planned acquisitions, the companies said in August and September.

“We can already see a larger supply of issues for the fourth quarter, both from big and smaller companies,” Marek Kuczalski, the deputy head of investment at Allianz SE’s mutual fund in Poland, with the equivalent of $782 million in assets, said by e-mail on Oct. 3. “Issuers want to take advantage of falling rates and spreads.”

Before it's here, it's on the Bloomberg Terminal.