Emerging-Market Firms Lag In Latest Rush To Issue Bonds
April 22 2009 - 11:28AM
Dow Jones News
Emerging-market sovereigns have tapped the market in earnest
since the beginning of the year, taking advantage of select windows
of opportunity, including the latest run of spread tightening.
But don't expect developing-world corporates to follow suit
anytime soon - at least not until investors get a clearer picture
of whether the global economy is on the mend or the recession will
be longer and deeper.
Several emerging governments have tapped international markets
since January, as markets have thawed a bit and spreads tightened.
The stronger credits were all too eager to jump in.
Developing nations have sold $41.2 billion in hard-currency
bonds so far this year, according to ING Wholesale Banking in New
York. In the same period last year, they sold nearly $19
billion.
In contrast, emerging-market corporates have sold $14.6 billion
in hard-currency bonds so far in 2009, also according to ING.
That's a far cry from the $88 billion in hard-currency bonds issued
the year before.
Moreover, that diminished amount includes bonds from
state-controlled, quasi-sovereign companies such as Brazil's
Petroleo Brasileiro SA (PBR), Russia's OAO Gazprom (GAZP.RS) and
Mexico's Petroleos Mexicanos.
Other than these companies, which enjoy high marks from
investors as they are fully backed by their governments, the
emerging-market corporate issuance world has been sparsely
populated.
Brazil's telecommunications company Telemar (TNE) is among the
latest to tap, pricing $750 million in bonds last week to yield
9.625%. Another Brazilian company, JBS SA (JBSS3.BR), which
controls Brazil's meatpacker Friboi, is expected to price $400
million in bonds Wednesday, to yield around 13%.
Those that have tapped markets "will be better placed to
withstand further financial turmoil," RBC Capital Markets said in a
note to clients Wednesday. But they also paid up - most deals,
quasi-sovereign excepted, offered yields of more than 9%.
Emerging-market corporates also might be pushed to the end of
the line as developed nations themselves have upped their financing
needs to respond to the crisis. Moreover, developed-world companies
and banks are also scrambling to raise much needed cash.
Sovereigns have better access to capital markets as investors
prefer them in periods of crisis. As the level of uncertainty is
greater with companies - too many moving parts to keep track of -
investors usually prefer to stick with tried and true
sovereigns.
"It is just not as straightforward" to invest in corporates,
said Scott MacDonald, head of research at Aladdin Capital
Management.
In addition, companies, unlike countries, don't have access to
lifelines from multilaterals, donor money and other sources of
funds that may come in handy in a pinch.
On Monday, Colombia joined Mexico and Poland in requesting a new
flexible credit line from the International Monetary Fund. Like its
predecessors, Colombia said it doesn't intend to use the money
unless the crisis becomes even more severe.
"Corporates don't have access to the wide range of multilateral
organizations ... which are open to the sovereigns even in times of
tight credit," MacDonald said. He sees conditions improving
starting this year, but it depends largely on a gradual recovery in
the U.S. and a clearer picture about the recession worldwide.
In response to the crisis and facing mounting debt obligations
coming due, a host of companies in emerging-markets have announced
cuts in capital expenditure plans, curtailed expansions and new
projects.
The market saw a jump in sovereign issuance so far this year due
largely to pent-up demand, since the market was all but shut down
in the fourth quarter of 2008, said David Spiegel, head of
emerging-market research at ING.
In addition, some emerging markets have seen their financing
needs rise as commodities prices go down and hard-currency
current-account earnings, tax revenues and other sources of
internal financing have dropped, he said.
-By Claudia Assis, Dow Jones Newswires; 201 938 4385;
claudia.assis@dowjones.com.
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